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AG office advises changes to tax credit law

/ Source: East Valley Tribune

As lawmakers in two separate panels hear testimony and data about Arizona's Private School Tuition Program, the Arizona Attorney General's Office is proposing changes to the 12-year-old law.

Tribune special report: Rigged Privilege

AG proposes changes to tax credit law

AG looks at private school scholarship groups

Lawmaker has questions for tuition groups

Susan Myers, assistant attorney general, presented the suggestions during a Democratic-led task force meeting Thursday.

Arizona law allows taxpayers - individual and corporate - to donate to nonprofit groups that provide scholarships for students to attend private schools. The taxpayers then receive a dollar-for-dollar state tax credit.

The groups - known as school tuition organizations or STOs - have been scrutinized in the past few months by the media and lawmakers.

In August, the Tribune published Rigged Privilege, an investigation that found considerable abuse of the program by STOs and families receiving scholarships.

Myers' office began an investigation into the STOs after the stories appeared. It sent letters to 19 STOs that in 2008 did not meet a rule in legislation that requires them to give out 90 percent of their donations in scholarships.

On Thursday, Myers presented the office's findings to a group led by Rep. David Schapira, D-Tempe, along with a list of recommendations. Some are laws in other states that have adopted similar tuition tax credit legislation.

While Arizona's corporate tax credit requires that scholarships go to students from low-income families, the individual tax credit program does not. And some STOs allow donors to "recommend" students to receive the donated scholarships, though many parents have said that the recommendation is merely a formality.

The recommendations from the Attorney General's Office are:

• Requiring family income eligibility.

• Prohibiting donor designations.

• Requiring separate accounts for scholarship funds and administrative funds.

• Permitting STOs to carry over some donations to the next fiscal year.

• Permitting STOs to transfer donations to other STOs with a demonstrated need.

• Requiring independent audits and more detailed reporting.

• Requiring funds not spent to revert to the state general treasury.

Myers said Florida law was changed to require that last recommendation after a review found an STO "had a bunch of money and didn't know what to do with it."

"There was a large lawsuit. They revised and amended statute to add these provisions," she said.

During the last meeting of Schapira's group, Lawrence Mohrweis, an accounting professor at Northern Arizona University who operates an STO, also made suggestions to change the law. Many were similar to Myers' list.

Schapira said he and other lawmakers will meet during the next few months to craft legislation to address many of the issues. In the meantime, an investigation is ongoing.

"At this point, the Attorney General's Office is continuing to review the data and considering legal options," Myers said.

In September, House Speaker Kirk Adams, R-Mesa, created an official committee to examine the STOs and the Private School Tuition Tax Credit law. That group will meet 1 p.m. Monday in House Hearing Room 5 at the state Capitol in Phoenix.