Can — or should — an STO make charitable contributions?

by David Safier

According to the 2010 tax return for Steve Yarbrough's Arizona Christian School Tuition Organization (ACSTO), it gave away $44,492 in contributions.

First question: does that make sense? A nonprofit whose funding comes entirely from money that otherwise would have gone into the state coffers giving money away to charities of its choice? The sole purpose of an STO is to furnish scholarships to private schools. That $44,492 would buy a whole lot of scholarships.

Second question: is that legal? STOs are allowed to use up to 10% of the money they take in to cover administrative expenses. Is a charitable contribution a legitimate administrative expense?

If there's something I'm missing here, please, someone who knows more about tax law or state law, help me out. If not, I think Steve Yarbrough has some explaining to do.