Thursday, March 11, 2010

Goldwater Institute: AZ House moves to improve tuition tax credit program

by Matthew Ladner, Ph.D.
Through the magic of public access television, I recently watched debate before the state House of Representatives on bills to reform the tuition scholarship tax credit program. I'm happy to report that legislators engaged in a substantive discussion and adopted amendments from both parties.

State capitolCongratulations to Representative Rick Murphy for bringing an important and helpful bill, HB2663, to the House. His bill will strengthen oversight through several steps, including empowerment of the state Department of Revenue to revoke the designation of "Student Tuition Organization" for rogue scholarship groups.

I was also impressed with the level of debate from House Democrats. In years past, I've had the impression many of these elected officials were content to complain about the scholarship tax credits, but they were not serious about doing anything to address their concerns. In this debate, I saw serious proposals offered.

For instance, Representative Steve Farley offered a floor amendment to allow the Department of Revenue to collect a fee from STOs to fund better oversight. Farley made a convincing case that state government is moving towards user fees during this economic downturn, and scholarship groups ought to be included. The amendment wasn't adopted. But a fee of less than one-half of 1 percent on the total amount each STO raises each year should provide sufficient funding and merits further consideration.

Other amendments would have required that scholarships funded by the individual tax credits go to students from low-income families, and would have forbidden STOs from considering any recommendations from donors about who should receive scholarships. Reasonable people can and have disagreed on these subjects.

Only the Internal Revenue Service can ultimately determine the legality of donor recommendations. I've seen legal opinions going both ways. In the meantime, HB 2663 specifies that donor recommendations cannot be the sole reason any student receives a scholarship, and scholarship groups must consider financial need as a part of their criteria.

No one is getting everything they desire from these reforms. But this bill represents a positive step towards improving transparency and accountability in the program if the Senate and the governor also approve it.

Dr. Matthew Ladner is vice president of research for the Goldwater Institute.

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