Opponents Sue to Block Ariz. Scholarships

Published November 1, 2006

Just a few days before it was scheduled to go into effect in mid-September, Arizona’s new corporate scholarship program was taken to court.

On September 19, the Arizona School Boards Association (ASBA), American Civil Liberties Union (ACLU) of Arizona, and several other organizations filed a lawsuit against the new program in Maricopa County Superior Court, with the intent of blocking its implementation.

The program gives corporations tax credits for donations they make to organizations that provide private school scholarships to low-income students. In the program’s first year the cap on total donations is $10 million, a ceiling that is supposed to rise 20 percent each year thereafter.

“This is yet another government scheme to take resources away from public schools and force taxpayers to finance religious institutions, in complete and total disregard for the Arizona constitution,” said Alessandra Soler Meetze, executive director of the ACLU of Arizona.

Not Public Money

The plaintiffs contend the program diverts money from the state’s public schools, violates state constitutional provisions forbidding public funding of religious schools, and keeps the state from furnishing a constitutionally mandated “general and uniform public school system.”

Tim Keller, executive director of the Arizona chapter of the Institute for Justice, which is defending the program, disagrees with the charges. In e-mailed comments for this article, Keller noted the corporate scholarship program does no more to divert money from public education than any other tax break, and that the “general and uniform” clause in the Arizona constitution simply sets a “‘floor’ upon which the state is free to provide additional educational options.”

Ultimately, Keller argues, from a legal standpoint the corporate program is indistinguishable from individual credits the state’s supreme court found constitutional in 1999.

“The Arizona Supreme Court has ruled definitively that tax credits are not public money,” Keller wrote. “In Kotterman v. Killian, they said, ‘No money ever enters the state’s control as a result of this [the individual] tax credit. Nothing is ever deposited in the state treasury or other accounts under the management or possession of governmental agencies or public officials. Thus we are not dealing with ‘public money.'”

Opponents Cite Cap

Opponents of the corporate program counter there is an important distinction between the corporate and individual tax credits. While the corporate program requires the state to pre-approve donations in order to ensure the total amount of credits stays under the cap, the individual program has no such provision. The cap, opponents argue, is tantamount to an appropriation of public funds, and makes the state an important actor in providing the scholarships, thus rendering the program unconstitutional.

“The corporate tax credit actually involves the state intimately,” explained ASBA Executive Director Panfilo Contreras.

Keller finds such assertions highly dubious.

“When you think about it, this argument is absurd,” Keller noted. “It would mean that an unlimited tax credit, like Arizona’s individual scholarship, is perfectly constitutional, but a limited program such as the one challenged here, is unconstitutional!”

The corporate scholarship program has taken effect despite the suit and, according to an October 5 Arizona Republic article, 63 businesses have already applied to contribute a total of $3.5 million. At press time, the court had not announced when it might consider the case.

Neal McCluskey ([email protected]) is a policy analyst at the Cato Institute’s Center for Educational Freedom.

For more information …

Arizona Corporate Scholarship Fund, https://www.corporatescholarships.org/index.aspx

Institute for Justice Arizona Chapter, http://www.ij.org/arizona/index.html

Arizona School Boards Association, http://www.azsba.org/

American Civil Liberties Union of Arizona, http://www.acluaz.org/

Kotterman v. Killian, U.S. Supreme Court, 1999, available through PolicyBot™, http://www.policybot.org, search for document #19824.