Thursday, January 21, 2016

Rep. Friese proposes reforms to Arizona’s STO program

Rep. Randy Friese, D-Tucson (District 9), recently introduced bills to reform private school tuition tax credit programs in Arizona, known as Student Tuition Organizations.

STOs were proposed in order to increase access to private schools for students from financially disadvantaged families or those with special needs. Unfortunately, only a little more than one-third of these scholarships are used for these purposes.

In addition, there are other problems with these programs. Individual taxpayers can suggest to the STOs an intended recipient of the “scholarship.” This loophole introduces the potential for abuse. Families can agree to suggest their friends’ children as recipients, further eroding the purpose and intent of these programs. Finally, the “switcher” program allows a doubling of the tax credit, creating another way to divert money from public schools.

The switcher program also diverts money from the state budget by allowing individuals to give twice the amount of money to STOs: they can donate to both the traditional program and the switcher program. The switcher program was intended to help students switching from a public to a private school for the first year. Instead, it has been allowed to provide money beyond the first year, leaving far less money available for all state programs, including public education.

STOs transfer hundreds of millions of Arizona’s tax dollars to private schools, and the corporate STO cap currently grows by 20 percent every year. Additionally, STOs keep 10 percent of all donations received as an administrative fee. In 2014, private schools received $123 million of taxpayer money, allowing STOs to make $12 million.

Without the reforms Dr. Friese is proposing, Arizona public school funding will continue to deteriorate.

A summary of these bills is included below:

HB 2208 – STO Cap; General Fund Percentage
This bill will set a hard cap for corporate STO tax credits at 1 percent of the general fund which is approximately $9 billion. This would result in a corporate STO tax credit cap of $90 million. By 2020, the corporate STO tax credit program will have reached this limit, and this legislation will protect the general fund from further cuts.

HB 2209 – STOs; Administrative Cost Allocation
This bill will decrease the administrative fee charged by STOs from 10 percent to 5 percent, providing additional scholarships for qualified students.

HB 2210 – STO Scholarships; Means Testing
This bill will require that the majority of the taxpayer money used for these programs go to students of families with modest incomes.

HB 2211 – STO Credit Gap; Growth Trigger
This bill will prohibit the 20 percent annual increase in corporate STO tax credit limits in years following an economic downturn, as defined by Proposition 123. Prop 123 would allow the legislature the option of not providing public school inflation funding. This bill would do the same for the corporate STO program. 

HB 2212 – STO Scholarships; Beneficiary Recommendations
This bill will reduce the potential for abuse by prohibiting a donor from naming a specific beneficiary.

HB 2213 – STO Scholarships; Student Transfers
This bill will limit the switcher tax credit program to a single year only.

As the 49th state in the nation for per student spending, Arizona cannot continue to allow STOs to redirect money meant for public school students to private schools. To share your ideas on STO reform, go to

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