by David Safier
Today has been a great day for investigative journalism in Arizona, and for shedding light on the shady practices of School Tuition Organizations (STOs) and the way they give out tuition tax credits.
As regular BfA readers know, I've posted often and in great detail on both topics, and readers' comments have carried the discussion much farther than I could have alone. But now the AZ Republic and the East Valley Tribune have joined in with a vengeance, going into far more detail than I could ever hope to.
The Republic wrote a very good article, Tuition-aid program benefits wealthy families, raises worry, exposing the way people game the tax credit system to pay large chunks of their children's private school tuition — sometimes every penny.
But that article is dwarfed by the investigative work done by the East Valley Tribune, which, frankly, I find breathtaking in its scope. Today the Trib published 2 excellent articles, Private school tax credits rife with abuse and School tuition organizations unaccountable, along with a list of key personalities and a multimedia presentation. But those are only the first installment of their three part investigative report, Rigged Privilege.
Two more articles will appear Tuesday, August 4, and final two Thursday, August 6. If the next four articles are like the first two, they could do serious damage to a number of people's reputations, and they could even lead to legal consequences.
The Trib's article about abuse of tuition tax credits is very long, and all of it is so good, it's hard to know what to excerpt here, but I'll be as rigorous as I can. Anyone who is really interested should read the original.
Here is their summary of their findings:
Instead, it has fostered a rigged system that keeps private education a privilege for the already privileged.
[snip]
The Tribune investigation found:
* An untold number of STOs, schools and parents are using the tax credits in ways that violate federal tax laws governing charitable donations.
* Nearly two-thirds of all STOs failed to spend 90 percent of their donations on scholarships – as required by state law – since 2003, the year the STOs began filing annual reports with the state Department of Revenue.
* Executives at two of the largest STOs have used tax credit donations to enrich themselves, buying luxury cars, real estate and funding their own outside for-profit businesses.
* A majority of tax credit donations are earmarked to give scholarships to students already enrolled in private schools, no matter how much money their parents earn. Just seven of the state's 55 STOs use financial need as the primary factor in deciding who gets tuition money.
* Even as they took in millions of dollars in scholarships, the state's private schools hiked tuition dramatically, pushing the cost of private education further from the grasp of middle- and low-income families.
* Tax credits have failed to increase minority students' access to Arizona's private schools. Students at the schools receiving the most scholarship money remained overwhelmingly white at a time when the state's Hispanic population boomed.
[Bold face added for emphasis]
Here are a few choice passages from the rest of the article:
The tax credits inherently benefit affluent families.
[snip]
It is the fetus who can benefit most from the state's private school tax credits, said ChamBria Henderson, founder and executive director of the Arizona Scholarship Fund (ASF).
"Some families know right from the moment of conception that this child is going to private school," she said.
ASF allows parents to bank away tens of thousands of dollars in tax credit donations for years – from the moment they conceive their child.
These donations go into each family's "K-12 Education Savings Account," according to its Web site.
Such accounts exponentially increase the power of tax credit scholarships by collecting money over a long period to pay for even the most expensive private education.
They also violate federal tax law.
[snip]
Working hard to solicit donations from family, friends and colleagues, Beth Fitch said she has managed to get her sons' entire tuition bill paid through scholarships for several years. Her oldest just finished eighth grade at Summit School of Ahwatukee in Phoenix; her youngest attends Desert Garden Montessori, where class sizes are kept in single digits.
[snip]
Several STO executives said they know that parents organize to trade tax credit donations, a practice that violates federal tax law.
[snip]
A Tribune analysis of Arizona private school enrollment data, likely the first such examination here, found that the 20 schools receiving the most income tax money have been largely immune to demographic shifts taking place around them.
Hispanics comprised 15 percent of enrollment at these private schools in 1996. Their share remained unchanged in 2008.
By comparison, Hispanics make up 42 percent of students in the state's public schools, up nearly 10 percentage points after a decade of massive Hispanic population growth in Arizona, data from the state Department of Education shows.
I usually get upset when the Goldwater Institute is used as the "experts" in education stories, but I'll make an exception this time. Clint Bolick, a lawyer with G.I. who defended the tuition tax credit program in the Arizona Supreme Court, is quoted as being disgusted with the way the credits are given out. He said at a school his son attended,
"My jaw dropped and I thought, 'This is horrible,'" Bolick said. "This is not the program I fought for."
I would like to find statements like this Bolick has made in the past, since he is an expert in the tuition tax credit laws and has known about the abuses for awhile. He writes regularly about problems with Arizona's state and local governments and, like all G.I. folks, deplores government waste. If he waited until the story hit the fan to say he was, "Shocked! Shocked!" I would have to take his statements as somewhat disingenuous. But I'll hold off judgment until I know more.
Meanwhile, this is a moment to bask in. I can't wait to read the next installments.
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I would enjoy reading the transcript Ellis. Please post it if you can.
Ellis: let’s see how long it takes Mr. Ladner to jump in on this one….
Cranky: I think you are on to something with the Goldwater Institute link to the investigative reporter who used to be an EVTribune reporter. I was on the LIVE Q&A with the reporters that took place from 10-11. (If you want a transcript, let me know and I will paste it below.) I know that I (and another person) raised questions about Clint Bolick and his association to STOs and his work in expanding them. Guess what, they NEVER published those questions. It has made me certain that the access and statistics have originally come from none other than the Goldwater Institute… I would bet a lot that some of the research that was dug up, the same research that dropped David’s jaw, was handed over to the reporters from GI. Matthew Ladner was raked over the coals on this blog over his “non”stance on Yarbrough and the abuse of STOs. Since many at the GI sit on STO boards, you can see how they would want to distance themselves from an investigation while at the same time controlling the information and the direction they want it to go. I don’t know, sounds crazy when I write it. But I wouldn’t put ANYTHING past the Goldwater Institute!
I never liked the idea of Tax Credits for donations to schools ever since it began. To me, it was an underhanded way to allocate public money to private schools and, as to public school contributions for the people to dictate where public monies would go, favoring schools with higher-income populations. I’m glad the newspapers are finally uncovering this scheme for what it really is.
I’m so glad this is getting the attention it deserves. I have been appalled by this program since its inception. It’s outright theft from the taxpayers of AZ, yet nobody in the Legislature has suggested cutting it to help close the budget deficit. I’ve been asking my legislators how they can continue this giveaway in the light of the massive cuts to K-12, but 2/3rds of my legislators are the worst of the worst of the wingnuts and the reasonable one has no power.
It sounds to me as though it’s working just like the bastards intended.
Thank you Eric, but much as I would like to take credit, it is undeserved. The Trib story clearly took a long, long time to put together — amazing research, stuff that made my mouth drop open — and unlike a blog, they can’t drip it out bit by bit. For them, it’s not finished until it’s finished. I like to think I fanned the embers to keep them burning, and maybe added a few tidbits to the story, thanks in great part to the commenters who kept bringing more stuff up. That’s plenty enough.
And now, let’s do what we can to make sure the story doesn’t die. The status quo for tuition tax credits and STOs should not stand under the preponderance of evidence that is being brought forward. Laws should change and, if laws have been broken, people should be brought to justice.
David
I really believe that your work on this blog is the true impetus for the resurrection of the story. It is amazing that even though they only spent 30% of the corporate one they had to eliminate the sunset this year and it grows by 20% each year. I am wishfully thinking that this could jumpstart a bipartisan, last minute budget. One that suspends all school tax credits and allows for the state equalization to come back. That would be $400 million of revenues and none of it new taxes.
Thinking out loud here….In light of Mr. Bolick’s strong tone re: quid pro quo, what do you suppose the chances are that the new GI investigative reporter worked with the two EV Trib reporters on this piece? If I remember correctly from Mr. Ladner’s comments in related posts here on B4A, he indicated the GI wouldn’t be happy if the tax credit program was being misused. Maybe it’s a crazy thought, but it seems rather coincidental that the EV Trib came out with an exceptional story and the GIs new investigative reporter used to work for…the EV Trib.
A few for the “WTF?” file on the second of today’s EV Trib article “School tuition organizations unaccountable”:
“The Arizona Christian School Tuition Organization goes so far as to routinely shred its application materials after it cuts scholarship checks each spring, said Steve Yarbrough, the STO’s executive director.”
[snip]
“The state attorney general and auditor general consider nonprofit charities outside of their jurisdiction.”
[Hey, Mr. Goddard! I think you better retool your jurisdiction.]
[snip]
“When particular “bad players” are operating inappropriately, other STO executives will advise the wayward nonprofits on how to reform. “The last thing we want is an STO that’s out of compliance in any way,” Miller said.”
Just who do they identify the “bad players”? Rep. Yarbrough shreds all the data that would prove if he’s misbehaving. Since he also served with Miller on the School Tuition Org’s “Legislative Committee”, I’m sure he’s “recommended” other executive directors invest in a decent office shredder, which they will later write off the depreciated value of.
This really lays bare the true impetus for much of the voucher debate. The Tribune series so far has uncovered details I am actually quite shocked about. If lawmakers don’t come back and either dump this system or radically reform it, I hope people will clearly see whose benefit they are fighting for. For all the talk of “protecting tax-payers” it is essentially creating special programs, benefits and loopholes for the wealthy.