Arizona State University

Arizona State University

The Equity Impact of
Arizona’s Education Tax Credit Program:
A Review of the First Three Years

(1998-2000)


Research Report

by

Glen Y. Wilson
Assistant Director
Education Policy Studies Laboratory
Arizona State University

 

Education Policy Research Unit (EPRU)
Education Policy Studies Laboratory
College of Education
Division of Educational Leadership and Policy Studies
Box 872411
Arizona State University
Tempe, AZ 85287-2411

March 2002

Arizona State University

EPSL-0203-110-EPRU

 

Educational Policy Studies Laboratory
Division of Educational Leadership and Policy Studies
College of Education, Arizona State University
P.O. Box 872411, Tempe, AZ 85287-2411
Telephone: (480) 965-1886
Fax: (480) 965-0303
E-mail: epsl@asu.edu

 

The Equity Impact of Arizona's EducationTax Credit Program:
A Review of the First Three Years (1998 - 2000)
by Glen Y. Wilson
Education Policy Studies Laboratory
Arizona State University

ExecutiveSummary

Research Findings

In 1997, the Arizonalegislature enacted an education tax credit with two components: a privateschool tuition tax credit and a public school extracurricular activity taxcredit. The law grants state taxpayers a dollar-for-dollar credit against theirstate income tax liability for contributions to School Tuition Organizations(STOs), which in turn, award tuition grants to students to use at privateprimary or secondary schools. Under the law STOs are to grant 90% or more oftheir revenue in the form of private school tuition grants. A similar provisionprovides a $250 tax credit for donations to public schools for extracurricularactivities that require a student fee.

Arizona’s private schooltuition tax credit program is expensive and does relatively little to help poorstudents. The primary recipients of private school tuition tax credit money arefamilies whose children are already enrolled in private schools. The financialand non-financial barriers to private schooling and price effects associatedwith private school tuition makes it unlikely that many poor students move frompublic to private schools because of assistance from the private school tuitiontax credit program. Over the three years of the public school extracurricularactivity tax credit, the wealthiest 25% of public schools received more thanfive times as much money from the program as the poorest 25% of public schools.

Recommendations

·        Legislatorsshould consider repealing the Arizona education tax credit law altogether—boththe private school tuition tax credit and the public school extracurricular taxcredit.

·        Theinformation and reporting requirements for school tuition organizations shouldbe strengthened (for example, whether a student receiving a tuition grant isswitching from a public to a private school, what public school the student istransferring from, family income, etc.).

·        Legislatorsshould amend the Arizona private school tuition tax credit to makeeligibility for a tuition grant dependent on level of income.

Introduction

Education tax credits are arelatively new policy instrument that uses the tax system to support schoolchoice. Over the past decade, 12 states have considered various education taxcredit proposals. Arizona, Florida, Illinois, Iowa, Minnesota, and Pennsylvaniahave enacted education tax credits into legislation.1 

Proponents claim thateducation tax credits will give low-income students the opportunity to attendprivate schools and that tax credits will improve all schools, both public andprivate, by increasing competition between schools for students.2

Opponents argue thatbecause access to education tax credit revenue is not equitably distributed,i.e., that children from poor families are less likely to benefit from taxcredits than children from higher-income families, and because wealthierfamilies are more likely to take advantage of the tax credit program thanlow-income families, education tax credits disproportionately help thewealthy more than the poor.3

History Of Arizona’s Education Tax CreditProgram

In Arizona's first regularlegislative session in 1997, House bill 2074 entitled “Tax credit: schooltuition organization” was passed and signed into law on April 7, 1997 by thenArizona Governor Fife Symington. The new law, Arizona Revised Statutes §43-1089, created an education tax credit with two components: a private schooltuition tax credit and a public school extracurricular activity tax credit.

The law was immediatelychallenged in a lawsuit (Kotterman v. Killian) alleging a violation ofthe First Amendment’s requirement of separation between church and state. TheArizona law (A.R.S.§ 43-1089) was upheld by a 3 to 2 vote of the ArizonaSupreme Court in the spring of 1999. The decision was appealed to the U.S.Supreme Court; however, on October 4, 1999, the U.S. Supreme Court declined toreview the case, and in doing so, expressed no opinion as to the merits of theappeal.

The Structure Of Arizona’s Education TaxCredit Program

Arizona’s private schooltuition tax credit grants Arizona taxpayers a dollar-for-dollar credit againsttheir state income tax liability for contributions to school tuitionorganizations (STOs). Under the law, STOs are non-profit organizations thatreceive tax credit funds and distribute tuition grants to students for use atqualified private primary or secondary schools.4The private school tuition tax credit statute currently allows a tax credit ofup to $500 for a single individual/head of household and up to $625 for marriedcouples filing a joint return. Tax credit claimants are allowed to carryforward the amount of the credit for up to five years.

A.R.S.§ 43-1089 puts fewlimits on how the proceeds from this tax credit may be used. The majorrestrictions are: that taxpayers claiming this credit may not designate theircontribution for their own dependents; that STOs shall distribute at least 90percent of their annual revenue for “educational scholarships” or “tuitiongrants;” and that STOs shall make scholarships or grants available to studentsof more than one school.5

A similar tax credit,currently limited to $250, is available for public schools. These tax creditfunds, however, may only be used for extracurricular activities that require astudent fee. Examples provided in the statute include band uniforms, equipment,or uniforms for varsity athletic activities, and scientific laboratorymaterials6. Initially, public schools did notqualify to receive tax credit funds because the legislative bill restricted thetax credit to “a nongovernmental primary or secondary school of the parentschoice.”7 As a compromise with opponents of thelegislative bill, the legislation as enacted included a $200 tax credit forK-12 public schools. Tax credit proponents described the public school taxcredit as being designed to attract greater support for the measure in thelegislature and with the public.8

Both the private schooltuition tax credit and the public school extracurricular activity tax creditmay be claimed each year. Therefore, a married couple filing jointly may claimup to $875 per year.9 

Purpose Of The Private School Tuition TaxCredit

In an April 9, 2000 story, TheArizona Republic reported, “supporters of the credit for private schoolsscholarships, including Rep. Mark Anderson, R-Mesa, who sponsored thelegislation, touted it as a way to send kids to private school who otherwisecouldn't afford to go.” [italics added]10Lisa Graham Keegan, former Arizona State Superintendent of Public Instruction,wrote:

With its [Arizona SupremeCourt] ruling that Arizona's private school tuition tax credit wasconstitutional at both the state and federal level, the court had affirmed thattrue educational choice--choice involving public, private, and religiousschools--could be accomplished in a manner which was responsive to the needs ofdisadvantaged students and their families without encroaching onfundamental First Amendment issues….  Predictably, this approach toallowing disadvantaged students such access to funds for privateeducation created an uproar among the educational bureaucracies…. The tuitiontax credit allows us to further expand choice to include private education,which is a venue that has not traditionally been available to poor anddisadvantaged families. [italics added]11

Arizona Supreme Court ChiefJustice Thomas B. Zlaket, in the 3-2 majority opinion upholding the tax creditstatute, wrote: “until now, low income parents may have been coercedinto accepting public education…. Arizona's tax credit achieves a higher degreeof parity by making private schools more accessible and providing alternativesto public education.” [italics added]12

In its ruling, the ArizonaSupreme Court adopted the argument that Arizona’s private school tuition taxcredit law was enacted to promote educational equity by providing financialassistance to low-income families whose children currently attend publicschools and who wish to send their children to private schools. Therefore, thesuccess of Arizona’s private school tuition tax credit law should be judged byhow well it meets this standard.

The Revenue Consequences Of Arizona’s TaxCredit Legislation

To government budgetanalysts, fiscal instruments such as tax credits and tax deductions areconsidered tax expenditures. Tax expenditures are specific exceptions from thetax code designed to support specific entities, activities, behaviors, orclasses of persons.13 Surrey and McDaniel characterized taxexpenditures in this way:

Whatever their form, thesedepartures from the normative tax structure represent government spending forfavored activities or groups, effected through the tax system rather thanthrough direct grants, loans, or other forms of governmental assistance…. These tax reductions in effect represent monetary assistance provided by thegovernment (p. 3).14

In considering the fiscalimpact of Arizona’s private school tuition tax credit law, it is important tounderstand the difference between a tax deduction and a tax credit.Since tax deductions for general charitable giving reduce taxable income uponwhich tax liability is calculated, the government and the individual share inthe costs of charitable giving. In this way, tax deductions act to increase thelevel of private philanthropic giving. Arizona's private school tuition taxcredit, unlike a tax deduction, provides a dollar-for-dollar reduction in thetax liability to those who utilize it. For this reason, taxpayers usingArizona’s private school tuition tax credit do not incur any private costwhatsoever. As a result, Arizona’s private school tuition tax credit does notact to promote additional private charitable or philanthropic giving. Instead,Arizona’s private school tuition tax credit functions to allow self-selectedtaxpayers to redirect funds to a private entity of their choosing that wouldotherwise flow into state accounts.

The cost to Arizona in losttax revenue from the Arizona education tax credit program over its first threeyears has been significant. The total tax revenue lost to any othergovernmental purpose is approximately $74.3 million for the first three yearsof the program. If one conservatively estimates 2001 education tax creditsclaimed at the same dollar amount as in 2000, then the four-year program cost tothe state will be approximately $109.4 million.

Table1: Total tax credits taken under Arizona's Education Tax Credit Program1998-2000

 

1998

1999

2000

Total

Public Schools

$8,990,042

$14,775,353

$17,514,774

$41,280,169

Private Schools

$1,816,299

$13,706,611

$17,542,662

$33,065,572

Total

$10,541,559

$28,481,964

$35,057,436

$74,345,741

Source: Arizona Department ofRevenue

The Attractiveness Of Tax Expenditures

One of the reasons that taxexpenditures, such as Arizona’s private school tuition tax credit, areattractive to legislators is that they allow legislators to support programswithout having the impact of their actions subjected to the sort of public noticeand scrutiny that is typically applied to direct spending programs. Perhaps forthis reason the Arizona legislature has made wide use of tax expenditures,having passed more than 100 such exemptions to the state sales tax over thepast 10 years.15 In the case of Arizona’s private schooltuition tax credit, the use of school tuition organizations (STOs) asintermediaries allows the state to ensure that tax dollars go to private andreligious schools without the use of direct appropriations or expenditures.This indirect process attempts to satisfy constitutional objections based onthe First Amendment concern of separation of church and state. For this reason,critics sometimes refer to tuition tax credits as “in essence a voucher insheep’s clothing.”16

In general terms,supporters of education tax credits have often argued that parents of childrenin private schools are being taxed twice, in that they must pay taxes that goto public schools as well as pay their own child’s private tuition.17In this view, an education tax credit merely helps to remedy an unfairsituation for the parents of private school students. This argument raisessignificant policy issues. Logically, the argument could be extended toanything that government provides but is available privately.18For example, although a portion of a person’s taxes pay for law enforcement, ifa person lives in a gated community with a private security service, shouldthat person receive a tax credit for the police services that he or she obtainsfrom private sources? If a person chooses to drink bottled water instead ofdrinking municipal water from the tap, should that person receive a tax creditfor the bottled water they purchase from private sources?19

Strictly speaking, theArizona private school tuition tax credit doesn’t go directly to the parentpaying tuition for his or her children to attend a private school. However, thepractical effect is almost the same. The private school tuition tax credit maybe taken by any taxpayer, with or without a child in school. A taxpayer writesa check to a school tuition organization (STO). The amount sent to the STO isrefunded back to the taxpayer, dollar-for-dollar, by reducing the taxpayer’sstate income tax owed. Parents apply to STOs for tuition grants to send theirchildren to particular private schools. The STOs decide which applicantsreceive grants and how much the applicant will receive. The private schooltuition tax credit law allows taxpayers claiming a credit to designate theirtax credit funds for a specific student as long as the designee is not thetaxpayer’s dependent. This permits families to designate their tax credits foran acquaintance’s child with the understanding that the acquaintance willreciprocate. It is not clear how widespread the practice of cross-designationis, but The Arizona Republic reported that in some STOs that allow fundsto be earmarked for specific students, the funds are “going almost exclusivelyto children already in private school, regardless of financial need.”20

Whether or not governmentshould be providing financial aid for goods and services purchased privately,but available publicly, involves differing conceptions of the role ofgovernment. It is likely, however, to become increasingly important forArizonans to have an open and thorough debate over these competing visions.

Constitutional andideological issues aside, a structural problem with Arizona’s private schooltuition tax credit program is that there is no limit on how much money theprogram could cost the state in a given year. The extent to which the privateschool tuition tax credit is taken in a particular year is unknown until thetax year is over and the credits taken are counted up. An open-ended,indeterminate program that diverts tax revenue away from the state treasury maynot be prudent, especially in times of fiscal need.21

Does Arizona’s Private School Tuition TaxCredit Harm Public Schools And The Students They Serve?

It has been argued thatmarket forces resulting from competition for students between public andprivate schools would help drive public school improvement. Tax creditopponents argue, however, that public school improvements would likely beattenuated by diminishing funds. They reason that the marginal costs of addingadditional students to a school are expected to be less than the state aid paidper student in cases where additional classrooms or teachers are not needed toaccommodate the increases in enrollment. Reductions in enrollment will have theopposite effect. Schools cannot reduce fixed costs in an amount equal to lossesin state aid when a handful of students leave several different classrooms. Asa result, public schools’ finances are stretched further and their ability toeducate their remaining students is weakened. Thus far, the empirical evidenceis inadequate to make a definitive assessment of whether public schools arebeing harmed as a result of Arizona’s private school tuition tax creditprogram.

Is Arizona’s Private School Tuition TaxCredit Likely To Provide Increased Access To Private Schools For Poor Children?

For families who want toenroll their children in private schools, there are several barriers that mustbe overcome.

·        Tuitioncost is, of course, a major barrier for low-income families who want to enrolltheir children in private schools.

·        Asecond barrier are the costs associated with private schools that are notincluded in the tuition charges, such as: fees for books, supplies, uniforms,and extracurricular activities. These ancillary costs add to the financialdifficulty for low-income families.

·        Athird barrier confronted by poor families who wish to enroll their children inprivate schools is that private schools, unlike public schools, are allowedselectivity in admissions. Criteria used for private school admission are oftenfactors such as previous academic performance (test scores), personalskills/achievements, and connections to the school (siblings attending, etc.).These criteria operate against children living in poverty.

·        Thefourth barrier faced by low-income families who want to enroll their childrenin private schools is that they may be the “wrong” religion for the school theywant their children to attend. The Arizona private school tuition tax creditstatute prohibits schools from discrimination on the basis of race, color,handicap, familial status, or national origin.22The law does not prohibit discrimination on the basis of religion.23Currently, many school tuition organizations (STOs) distribute scholarshipsonly to schools affiliated with specific religions or religious beliefs.

·        Afifth barrier facing poor families that wish to send their children to privateschools is transportation. Private schools do not commonly providetransportation services to their students. For those who require some sort oftransportation to school (those further than walking or bicycling distance),there are additional monetary costs (school transportation fees, public transitfees, etc.) as well as nonmonetary costs (additional time costs to the parentsand/or students).

Tuition is thus, only oneof a number of barriers, some financial and some non-financial that, takentogether, put private schools beyond the reach of poor families.24Since it provides only tuition support, Arizona’s private school tuition taxcredit might be expected to disproportionately benefit more well-off students,rather than low-income children as its supporters intended.

The Economies Of Private School Demand

The Arizona private schooltuition tax credit program, in effect, attempts to lower the price of privateeducation in Arizona. Economic theory suggests that as a result there will bean increase in demand for private education and a reduced demand forsubstitutes such as public education. Thus, a reduced price for privateschooling is expected to result in increased enrollment in private schools.Economists refer to this as a “price effect,” that is, the effect that a changein price has on the amount of a good or service demanded.

James and Levin reason thatthere is no single price effect associated with a tuition grant. A family’sresponse to a tuition grant depends greatly upon current family wealth. Forexample, there are probably many families that are wealthy enough to switch toprivate schools without financial aid, but who are satisfied with theirchildren’s public schooling.25 We may also assume that many low-incomefamilies, even with the financial assistance of an STO tuition grant, wouldstill not be able to afford to enroll their children in private schools. Ifthis is the case, then it follows that most of the increased enrollment demandfor private schooling will take place in the middle-income range. 

Thus, price effectmechanisms coupled with the various financial and non-financial barriers thatpoor families face suggest that Arizona’s private school tuition tax creditwill disproportionately benefit well-off students rather than lower-incomestudents.

Assessing The Benefits And Costs Of ThePrivate School Tuition Tax Credit

In the following sections,estimates of the efficiency with which the Arizona tuition tax credit programassists students to leave public schools and enroll in private schools arecalculated. Estimates of the number of poor students benefiting from the taxcredit program are also calculated. These estimates will allow a judgment to bemade regarding the efficiency and equity of the private school tuition taxcredit component of the Arizona education tax credit program. 

Through checks of privateschools’ websites and telephone calls to private schools, tuition charges for96 private schools in Arizona were obtained. Private school tuition costs for2000-2001 are listed in Table 2.

Table2: Private School Tuition in Arizona 2000-2001

 

N

Median

Mean

Standard Deviation

Elementary Schools

44

$3,175

$3,994

$1,447

Middle/Jr. High Schools

35

$3,600

$4,561

$2,439

High Schools

17

$5,850

$6,664

$2,979

Sources: Schools’ websites and phonecalls to schools

Table 3 illustrates the percapita tuition grant amount awarded for each of the three years of the program.In 2000, the per capita tuition grant award amount was $855.81.

Table3: STO Tuition Grant Data 1998-2000

 

1998

1999

2000

3-year

Program Totals

Number of tuition grants awarded

326

3,726

15,238

19,290

Total amount awarded

$147,470

$2,377,319

$13,040,812

$15,565,601

Per Capita amount awarded

$452.3626

$638.04

$855.81

$806.93

Source: Arizona Department ofRevenue

Taking the median tuitioncharge for elementary schools and dividing by the per capita tuition grantamount shows that the year 2000 per capita tuition grant amount of about $856covered approximately 27 percent of the median tuition charge of $3,175 forprivate elementary schools in Arizona. For the higher tuitions of middle/juniorhigh schools and high schools, $856 would correspond to about 19 percent and 15percent respectively (see Table 4).

Table4: Percentage of Private School Tuition Covered by $856 Per Capita Award Amount2000

 

Median tuition cost 2000-2001

Percentage of tuition covered by
Per capita award amount

Elementary Schools

$3,175

27.0%

Middle/Jr. High Schools

$3,600

18.8%

High Schools

$5,850

14.6%

Sources: Arizona Department ofRevenue, schools’ websites and phone calls to schools , and author’scalculations

Applying the price effectmechanism to the relatively low amount of the per capita tuition grant suggeststhat few poor families will be able to move their children from a public schoolto a private school by means of Arizona’s private school tuition tax creditprogram. 

The U.S. Department ofEducation's National Center for Education Statistics (NCES) estimated that inthe fall of 1999 (latest estimate available) there were 44,060 studentsenrolled in private elementary and secondary schools in Arizona.27NCES estimates indicate that private school enrollment in Arizona has been verystable over the past several years (41,957 in 1993 and 44,991 in 1997).28Considering that the 19,290 students who received tuition grants in the threeyears from 1998 to 2000 (15,238 in 2000) represent nearly 44 percent of theannual Arizona private school enrollment, it is likely that a substantialproportion of these tuition grants were provided to students already enrolledin private schools. Thus, a considerable percentage of the tuition grantsawarded by STOs are likely to be going to families with children alreadyenrolled in private schools.29 A precise percentage is impossible tocalculate because STOs are not required to report the number of tuition grantsgoing to students that are transferring from public to private schools.

How Many Poor Children Are Helped To LeavePublic Schools By Arizona’s Private School Tuition Tax Credit?

Target efficiency is acriterion measure used by economists to judge the efficiency of public spendingprograms. For the Arizona private school tuition tax credit, target efficiencyquantifies the proportion of the total cost of the private school tuition taxcredit that moved children from public schools to private schools. Thus, thetarget efficiency of the private school tax credit in increasing private schoolaccess is defined as the proportion of the total cost of the tuition tax creditreceived by families who actually switch from public schools to privateschools. Note: these families are not necessarily low-income families. Childrenthat move from public schools to private schools are referred to as“switchers.”30 Money from the Arizona private schooltuition tax credit program received by families whose children do notswitch from public to private schools are obviously students already enrolledin private schools. Therefore, high target efficiencies indicate that greaterproportions of tuition tax credit resources are going to switchers and lowertarget efficiencies mean that smaller proportions of tuition tax creditresources are going to switchers.

According to Belfield,target efficiencies for tuition tax credits tend to be very low, meaning thattuition tax credits appear to primarily benefit those already enrolled inprivate schools. Belfield's literature review reveals that target efficiencieshave been estimated by various researchers to range from less than 5 percent tono more than 15 percent.31 That is, only 5 to 15 percent of tuitiontax credit revenue recipients will be switchers. The Cato Institute, a strongadvocate of tuition tax credits, estimated a range for the target efficiency ofArizona’s private school tuition tax credits at between 15 and 30 percent. Forits calculations and projections, however, the Cato Institute paper utilized 20percent as the target efficiency for Arizona’s private school tuition taxcredits.32 Thus, the full range of estimates forthe target efficiency of tuition tax credits runs from less than 5 percent upto 30 percent. For this analysis, the Cato Institute’s target efficiencyestimate of 20 percent will be used.

The private school tuitiontax credit component of Arizona’s education tax credit statute requires that atleast 90 percent of a school tuition organization’s (STO) proceeds be spent inthe form of tuition grants. Therefore, as much as 10 percent of the fundsreceived by an STO may be used to cover the costs such as establishing andincorporating the STO as a non-profit organization, office equipment, employeetime, office supplies, and marketing and advertising fees. A survey of STOsconducted by Damore indicated a mixed view of whether 10 percent was anadequate amount for administrative purposes. Of 27 STOs that responded, 11 STOsstated that the amount was more than enough, 10 stated that the amount wasabout the right amount, and six STOs indicated that the amount was inadequate.33It is likely that STOs receiving small amounts under the program might judge 10percent as inadequate, while those STOs receiving greater amounts are likely toindicate 10 percent as adequate or more than enough. For example, the CatholicTuition Organization of the Diocese of Phoenix received more than $5.4 millionin 2000 and is entitled to use up to $543,721 for administrative purposes whilethe STO receiving the least (Patagonia Scholarship Fund), took in $5,800 andmay use a maximum of $580 for its administrative costs.

Assuming that 5 percentwill be adequate for administrative expenses and that 95 percent of theresources received by STOs will be paid out as tuition grants, it is estimatedthat at a target efficiency of 20 percent, on average, for every dollar ofrevenue given out in grants over the three years of the program, about 19 centswent to students who moved from public to private schools. Approximately 76cents of every dollar appears to have gone to families whose children werealready enrolled in private schools (See Table 5). 

How Much Does It Cost Taxpayers When AStudent Switches From A Public School To A Private School?

Assuming that tuition grantresources are evenly distributed among awardees, the cost per student whoswitches from a public to a private school is calculated by taking the totalprivate school tuition tax credit program cost ($15,565,601) and dividing bythe product of the estimated target efficiency (20%) and the number of tuitiongrants awarded under the program (19,290). By this calculation, it is estimatedthat at a 3-year program cost of more than $15.5 million, the private schooltuition tax credit program has assisted approximately 3,858 students switchfrom public schools to private schools. Thus, it is estimated that the Arizonaprivate school tuition tax credit program has cost the state about $4,035 for eachstudent who switched from public to private school (See Table 5 for a range ofestimates based on different target efficiency estimates).

Table5: Efficiency Estimates for the Arizona Private School Tuition Tax Credit UnderVarious Target Efficiency Estimates Assuming 5% Administrative Expenses1988-2000

Source

Target efficiency estimate from source

Target efficiency used for author’s estimates

Estimated average amount going to school switchers

Estimated number of students switching schools as result of program

Estimated total per student program cost for students who switch schools

Bast (2001)

< 5%

5%

About 4.8 cents per dollar

965

$16,130

Frey (1983, 1995)

12-13%

12.5%

About 11.9 cents per dollar

2,412

$6,453

West (1985) and Olsen

et al. (2001)

No more than 15%

15%

About 14.3 cents per dollar

2,894

$5,379

Cato Institute

[Lips and Jacoby (2001)]

20% was assumed in Cato Institute paper)

20%

About 19.0 cents per dollar

3,858

$4,035

Cato Institute [Lips and Jacoby (2001)]

Range of 15-30%

30%

About 28.5 cents per dollar

5,787

$2,690

Sources: Arizona Department ofRevenue, Belfield (2001), Lips and Jacoby (2001), and author’s calculations

The stated goal of theArizona private school tax credit is to provide increased access to privateschooling for poor or disadvantaged families. To determine if this goal isbeing achieved, it is necessary to estimate what proportion of the total amountof the private school tuition tax credit that actually goes to provideincreased access to private schools for children of poor families. To judge theefficiency and equity of the Arizona private school tuition tax credit program,an estimate was calculated of the percentage of all low-income public schoolstudents that used the tuition tax credit program to switch from public schoolsto private schools.

According to the U.S.Census Bureau, in 1997, 22.1 percent of related children ages 5 to 17 inArizona lived in families in poverty.34 Bymultiplying Arizona’s total 1997 public K-12 school enrollment of 814,11335by the school age poverty percentage of 22.1, it is estimated that there wereapproximately 179,919 Arizona public school students in poverty in 1997.Multiplying the target efficiency of 20 percent by the total number of tuitiongrants provided under the program over its 3-year life (19,290), we find thatabout 3,858 students switched from public to private schools with tuitiongrants from the program. If we assume that all of the students whoswitched from public to private schools were poor, then Arizona’s privateschool tuition tax credit program assisted approximately 3,858 poor studentsout of a total population of poor K-12 public school students of 179,919. Thismeans that the private school tuition tax credit has helped about 2.1 percentof the poor students attending public schools at a cost to the state of about$15.5 million. Note that it is highly unlikely that all studentsreceiving tuition grants were from low-income families. Therefore, 2.1 percentno doubt considerably overstates the percentage of poor public school studentsthat this program has helped.

Does Arizona’s Private School Tuition TaxCredit Promote Equity?

Critics of Arizona’sprivate school tuition tax credit program argue that tuition tax  creditsare unfair because lower-income taxpayers have less access to them than dowealthier taxpayers. Under the law, Arizona’s private school tuition tax creditis available to all taxpayers willing to send funds to a school tuitionorganization and claim the tax credit on their Arizona individual income taxreturns. It is clear that all taxpayers do have formal equal access. Criticsargue, however, that because low-income taxpayers have less  income, theyare less likely to have the money available to send to an STO in order to laterclaim it on their tax returns. To consider the argument that tax credits areunfair because they are less accessible by lower-income individuals andfamilies and more accessible by wealthier individuals and families, we canreview the available data on the distribution of Arizona’s private schooltuition tax credit by the tax credit claimant’s level of income. The data onprivate school tax credit claimants is based on the Arizona Department ofRevenue’s review of individual tax returns and is available for only the firstyear of the program (1998). Table 6 presents data on the distribution of 1998private school tax credits by the claimant's federal adjusted gross income(FAGI). According to the United States Census Bureau, the 1998 median incomefor a 4-person family in Arizona was estimated to be $49,397.36For this analysis, tax credit claimants were placed into two groups based ontheir federal adjusted gross income: those with a FAGI below $50,000 and thosewith a FAGI above $50,000, broadly representing lower-income claimants andhigher-income claimants respectively. Claimants below $50,000 FAGI accountedfor 19.2 percent of the number of private school tuition tax credits taken and15.9 percent of the total amount. Those with federal adjusted gross incomesabove $50,000 took 80.8 percent of the number of the tuition tax credits aswell as 84.1 percent of the total value of all the private school tuition taxcredits taken.

Table6: Arizona Private School Tuition Tax Credit Claimants Above And Below $50,000Federal Adjusted Gross Income (FAGI) 1998

 

Total

Below $50,000 FAGI

Above $50,000 FAGI

Number of credits taken

3,548

682

2,866

Percentage of total number of credits taken

100.0%

19.2%

80.8%

Total amount of credits

$1,571,100

$249,655

$1,321,445

Percentage of total amount of credits taken

100.0%

15.9%

84.1%

Mean credit amount

$442.81

$366.06

$461.08

Source: Arizona Department ofEducation and Arizona Department of Revenue37

The data in Table 6 areconsistent with previous tax credit research that shows tax expenditures, suchas tax credits, are much more likely to be claimed by higher-income individualsthan by lower-income individuals. These data support the argument that Arizonataxpayers do not have real equal access to the Arizona private school tuitiontax credit..

Assessing The Equity Of The Public SchoolExtracurricular Activity Tax Credit

In the following sections,analyses of the distribution of resources from the Arizona public schoolextracurricular activity tax credit are provided. The available data on thedistribution of Arizona public school extracurricular activity tax credit bythe tax credit claimant’s level of income are also examined. These figures willreveal the degree to which the Arizona public school extracurricular activitytax credit component of the Arizona education tax credit program promotesequity.

Public Schools Findings

School-level data recordsfor 1998 through 2000 on the Arizona public school extracurricular activity taxcredit and the free and reduced meal program (F/R meal program) were obtainedfrom the Arizona Department of Revenue and the Arizona Department of Education.These two datasets were matched by schools and the records merged. The datasetwas sorted in ascending order by school-level F/R meal program percentages. Theschools were then grouped into equal number-of-schools-sized quarters. Thisprocess yielded four groups of schools by relative wealth. For each year, thepercentage of students receiving F/R meal assistance ranged from 1 to 100percent. Summary tables were developed for several items of interest (schoolcharacteristics, school basis contribution data, and student basis contributiondata). Schools for which there was no tax credit contribution listing and/or nofree/reduced meal program data were not included in this analysis.  Aftercombining the two data records, the analysis captured 66.2 percent of the moneygoing to the public schools from the public school extracurricular activity taxcredit in 1998, 68.9 percent in 1999, and 74.8 percent in 2000. Overall, itshould be noted that the results, while reflecting program growth, wererelatively stable over the three years of the program. Characteristics of theschool quarters formed on the basis of F/R meal program percentages are shownin Table 7.

Table7: Characteristics of Public School Quarters 1998 –2000

 

1998

1999

2000

Number of Schools

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

932

233

233

233

233

 

1,008

252

252

252

252

 

1,036

259

259

259

259

School Enrollment

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

674,945

143,181

165,274

168,495

197,995

 

714,591

155,579

166,568

177,680

214,764

 

744,009

167,404

157,280

182,422

236,903

Percent of Total School Enrollment

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

100.0

21.2

24.5

25.0

29.3

 

100.0

21.8

23.3

24.9

30.1

 

100.0

22.5

21.1

24.5

31.8

Mean Percentage of Students Eligible for F/R Meal Program

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

51.3

87.2

63.4

40.6

14.1

 

52.4

88.2

65.1

41.8

14.4

 

52.1

88.3

65.4

40.6

14.0

Range of Percentage of Students Eligible for F/R Meal Program

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

1-100%

75-100%

53-75%

27-53%

1-27%

 

1-100%

76-100%

54-76%

28-54%

1-28%

 

1– 100%

77–100%

53–77%

27–53%

  1– 27%

Sources: Arizona Department ofEducation, Arizona Department of Revenue, and author’s calculations

Table 7 shows the extent ofthe differences in mean F/R meal percentages between the quarters. The meanpercentages of students eligible for the F/R meal program represent relativedifferences in poverty for a school’s student body. The overall mean percentageof students in this dataset eligible for the F/R meal program was 51.3 percent(SD=28.01) in 1998, 52.4 percent  (SD=28.28) in 1999, and 52.1 percent (SD=28.66)in 2000. When viewed by quarters, the mean percentage of students eligible forthe F/R meal program ranged from 14.1 percent (SD=7.36) in the wealthiestquarter to 87.2 percent (SD=6.94) in the poorest quarter in 1998, from 14.4percent (SD=7.70) in the wealthiest quarter to 88.2 percent (SD=6.43) in thepoorest quarter in 1999, and from 14.0 percent (SD=7.59) in the wealthiestquarter to 88.3 percent (SD=6.68) in the poorest quarter in 2000 (See Chart1). 

Chart1: Mean Percentage of Students in Quarters Receiving F/R Meal ProgramAssistance 

Mean Percentage of Students in Quarters Receiving F/R Meal Program Assistance
Sources: Arizona Department of Education, Arizona Department of Revenue, andauthor’s calculations

The Arizona public schoolextracurricular activity tax credit data and the free and reduced meal programdata, when merged, accounted for a total of $29,236,422 of the public schoolextracurricular tax credit taken (70.8% of total) from 1998 to 2000.

Over the three years of theprogram, the wealthiest 25% of public schools received 148,195 individual taxcredits taken (58.6 percent of the total) while the poorest 25% of publicschools received 16,626 individual tax credits or 6.6 percent of the publicschool extracurricular activity tax credits taken (See Table 8 for furtherdetails).

The data on the dollaramounts that public schools received tells a similar story of wealthier publicschools receiving a disproportionately large share of the resources from thisprogram. From 1998 to 2000, the wealthiest quarter of public schools received52.2 percent of the resources provided while the poorest quarter of publicschools received 10.0 percent of the money from the public schoolextracurricular activity tax credit program (See Chart 2 and Table 8).

Chart2: Distribution of Funds from Public School Extracurricular Activity Tax Creditto School Quarters 1998-2000

Distribution of Funds from Public School Extracurricular Activity Tax Credit to School Quarters 1998-2000
Sources: Arizona Department of Education, Arizona Department of Revenue, andauthor’s calculations

The resource distributionpattern from 1998 to 2000 resulted in public schools in the wealthiest quarterreceiving a per school mean of $20,517 and public schools in the poorestquarter receiving a mean amount of $3,913 per school (See Table 8). 

Table8: School Basis Donation Data 1998-2000

 

1998

1999

2000

3-Year Program Total

Tax credit amount

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

$5,953,253

$662,272

$784,627

$1,362,890

$3,143,465

 

$10,176,918

$1,004,889

$1,571,594

$2,415,892

$5,184,543

 

$13,106,251

$1,243,841

$1,647,398

$3,278,621

$6,936,390

 

$29,236,422

$2,911,002

$4,003,619

$7,057,403

$15,264,398

Percentage of total tax credit amount

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

100.0

11.1

13.2

22.9

52.8

 

100.0

9.9

15.4

23.7

50.9

 

100.0

9.5

12.6

25.0

52.9

 

100.0

10.0

13.7

24.1

52.2

Number of tax credits

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

53,292

4,092

6,204

13,240

29,756

 

78,580

5,762

11,101

19,069

42,648

 

120,894

6,772

11,298

27,033

75,791

 

252,766

16,626

28,603

59,342

148,195

Percentage of total tax credits

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

100.0

7.7

11.6

24.8

55.8

 

100.0

7.3

14.1

24.3

54.3

 

100.0

5.6

9.3

22.4

62.7

 

100.0

6.6

11.3

23.5

58.6

Mean per school tax credit amount

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

$6,727

$3,231

$3,503

$6,030

$13,667

 

$10,096

$3,988

$6,236

$9,587

$20,574

 

$12,651

$4,802

$6,361

$12,659

$26,781

 

$9,824

$3,913

$5,381

$9,486

$20,517

Sources: Arizona Department ofEducation, Arizona Department of Revenue, and author’s calculations

Similar disparities areevident when the data are presented on a per student basis. Comparing the3-year program totals for the poorest and wealthiest quarters shows that publicschools in the poorest quarter received an average of $6.24 per enrolled studentwhile the public schools in the wealthiest quarter received an average of$23.50, approximately 3.76 times more than the schools in the poorest quarter(See Table 9). The per student amounts for the public school quarters for eachyear (1998, 1999, and 2000) are shown in Chart 3. The disparity between thepoorest and wealthiest quarters’ per student amounts has increased with eachyear of the program. In 1998, the schools in the wealthiest quarter received3.43 times as much as the schools in the poorest quarter. In 1999, those in thewealthiest quarter received 3.73 times as much as those in the poorest quarter.By 2000, the public schools in the wealthiest quarter received 3.94 times asmuch as the poorest quarter’s schools (See Table 9).  

Chart 3: Public School ExtracurricularActivity Tax Credit Funds to School Quarters On A Per Student Basis 1998-2000

Public School Extracurricular Activity Tax Credit Funds to School Quarters On A Per Student Basis 1998-2000
Sources: Arizona Department of Education, Arizona Department of Revenue, andauthor’s calculations

Table9: Public School Extracurricular Activity Tax Credit Data On A Student Basis1998-2000

 

1998

1999

2000

3-Year Program Total

Donation Amount per student

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

$8.82

$4.63

$4.75

$8.09

$15.88

 

$14.24

$6.46

$9.44

$13.60

$24.14

 

$17.62

$7.43

$10.47

$17.97

$29.28

 

$13.70

6.24

$8.19

$13.35

$23.50

Number of students per donation received

  All Schools

  Poorest Quarter

  Second Poorest Quarter

  Second Wealthiest Quarter

  Wealthiest Quarter

 

12.7

35.0

26.6

12.7

6.7

 

9.1

27.0

15.0

9.3

5.0

 

6.2

24.7

13.9

6.7

3.1

 

8.4

28.0

17.1

8.9

4.4

Sources: Arizona Departmentof Education, Arizona Department of Revenue, and author’s calculations

As was the case withArizona’s private school tuition tax credit program, critics argue that thepublic school extracurricular activity tax credit is similarly unfair becauselower-income taxpayers have less real access to the credits than do wealthiertaxpayers. The available data on public school extracurricular activity taxcredit claimants is based on the Arizona Department of Revenue’s review of 1998individual tax returns. An analysis of the distribution of Arizona’s publicschool extracurricular activity tax credit by the tax credit claimant’s federaladjusted gross income (FAGI) indicates that claimants below $50,000 FAGIaccounted for 23.9 percent of the number of public school extracurricularactivity tax credits taken and the 22.9 percent of the total amount. Those withFAGIs above $50,000 took 76.1 percent of the number of the public schoolextracurricular activity tax credits as well as 77.1 percent of the total valueof all the public school tax credits taken (See Table 10).

Table10: Arizona Public School Extracurricular Activity Tax Credit Claimants AboveAnd Below $50,000 Federal Adjusted Gross Income (FAGI) 1998

 

Total

Below $50,000 FAGI

Above $50,000 FAGI

Number of credits taken

36,479

8,703

27,776

Percentage of total number of credits taken

100.0%

23.9%

76.1%

Total amount of credits taken

$6,636,201

$1,518,920

$5,117,281

Percentage of total amount of credits taken

100.0%

22.9%

77.1%

Mean credit amount

$181.92

$174.53

$184.23

Sources: Arizona Department ofEducation and Arizona Department of Revenue38

The Need For Information

At several points duringthe research, analysis, and writing of this report, it was clear that there wasa lack of information available with regard to school tuition organizations’(STOs’) receipt and use of funds from the private school tuition tax creditprogram. Although the Arizona Department of Revenue encourages STOs to reportprivate school tuition tax credit claimants’ names and amounts, and their(STOs) allocations of tuition grants,39 reporting isnot required under A.R.S.§ 43-1089, the private school tuition tax credit law.Georganna Meyer, Chief Economist at the Arizona Department of Revenue,confirmed that information reporting by STOs is completely voluntary and ifSTOs do not report, there is nothing that the state can do to compel them toprovide information.40 Even the information that the ArizonaDepartment of Revenue encourages STOs to provide is inadequate to preciselyevaluate the costs and benefits associated with the private school tuition taxcredit program. Although some have touted the brevity of the statute as a plus,the lack of any meaningful reporting requirements is clearly a weakness of thelaw.41

Findings
Private School Tuition Tax Credit
  1. Arizona’s private school tuition tax credit program is expensive and does little to help poor students. The primary recipients of private school tuition tax credit money are families whose children are already enrolled in private schools. It is estimated that approximately 76 percent of the private school tuition tax credit grants are going to current private school students.
  2. The financial and non-financial barriers to private schooling and price effects associated with private school tuition makes it unlikely that many poor students move from public to private schools because of assistance from the private school tuition tax credit program. 
  3. Although all families have formal access to Arizona’s private school tuition tax credit program, actual participation is positively associated with income. For a variety of reasons, those with higher incomes participate in the program in much higher numbers than families with lower incomes.
  4. The lack of meaningful reporting requirements in Arizona’s private school tuition tax credit law make it difficult to precisely calculate the private school tuition tax credit program effects.
Public School Extracurricular Activity TaxCredit 

1.       Schools serving low-income childrenare receiving relatively little from this program. Arizona’s wealthiest schoolsreceive a disproportionately high percentage of the money gathered. Over thethree years of the program, public schools in the wealthiest quarter receivedmore than five times as much money from the program as public schools in thepoorest quarter.

2.       As is the case with the privateschool tuition tax credit, data on public school extracurricular tax creditclaimants indicates that actual participation is positively associated withincome, that is, those with higher incomes participate in the tax creditprogram to a greater extent than those with lower incomes.

Recommendations

Arizona’s private schooltuition tax credit is not achieving its goal of providing poor familiesopportunities to enroll their children in private schools. Funds from Arizona’spublic school extracurricular tax credit are disproportionately going towealthier schools. Legislators should consider repealing the Arizona educationtax credit law altogether—both the private school tuition tax credit and thepublic school extracurricular tax credit. The program is expensive andinefficient at reaching low-income students.

·        Theinformation and reporting requirements for school tuition organizations (STOs)should be strengthened (for example, whether the student receiving a tuitiongrant is switching from a public to a private school, what public school thestudent is transferring from, family income, etc.). With more completeinformation from STOs, researchers will be able to more precisely evaluate thecosts and benefits associated with the private school tuition tax creditprogram.

·        Legislatorsshould amend the Arizona private school tuition tax credit to makeeligibility for a tuition grant dependent on level of income through a meanstest. This would ensure that low-income families and students would benefitfrom this tuition tax credit program. Means testing would improve the efficiencyand equity of this program.

References and Notes

1 Mackinac Center for Public Policy(2001). States to recently consider or enact K-12 education tax creditlegislation.  Graphic from Michigan education report. [On-line].Available: www.mackinac.org/media/images/2001/mer2001-03e.gif.

2 Lips, C. and Jacoby, J. (2001,September 17).  The Arizona education tax credit: Giving parents choices,saving taxpayers money.  No. 414. Cato Institute.  p.2.

3 Weinberg, D. H. (1987). Thedistributional implications of tax expenditures and comprehensive incometaxation.  National Tax Journal, 40, pp. 237-253. That tax expenditures donot offer the same real opportunities to lower-income individuals and familiesis well-established in tax research. For example, Weinberg estimated that in FY1985 more than one-half of the tax expenditures (credits and deductions) takenthrough the individual income tax system went to the 20 percent of familieswith the highest incomes.

4 Arizona Revised Statutes § 43-1089.

5 Arizona Revised Statutes § 43-1089.

6 Arizona Revised Statutes §43-1089.01

7 [Arizona Revised Statutes § 43-1089(E) (1), (2)]

8 Keegan, L. G.  (2001, December18).  Tuition tax credits: A model for school choice. National Center forPolicy Analysis. Brief analysis No. 384. Keegan states that “the inclusion oftax incentives to directly assist public schools helped sell the program notonly to the Legislature but also to the public.”

9 Arizona Department of Revenue.School Tax Credits. Publication 707. p. 2.

10 Bland, K. (2000, April 9). Schooltax credits wide open to abuse. The Arizona Republic, pp. A1, A22.

11 Keegan, L. G.  (2001). Tuitiontax credits. Education Leaders Council [On-line]. Available:http://www.educationleaders.org/issues/010401keegan.htm

12 Kotterman v. Killian, No. CV-97-0412-SA(1999).

13 Surrey, S. S. and McDaniel, P. R.(1985) Tax expenditures. Cambridge: Harvard University Press. p. 3.

14 Surrey, S. S. and McDaniel, P. R.(1985) Tax expenditures. Cambridge: Harvard University Press. p. 3.

15 Scutari, C. (2002, February28).  Union wants raises for state employees on ballot.  The ArizonaRepublic. [On-line]. Available: http://arizonarepublic.com/special12/articles/0228NORAISE28.html.

16 Moses, M. S. (2000, August 1). TheArizona education tax credit and hidden considerations of justice: why we oughtto fight poverty, not taxes. [On-line]. Available: http://epaa.asu.edu/epaa/v8n37.html..

17 James, T. and Levin, H. M. (1983)Public dollars for private schools. Philadelphia: Temple University Press. p.45.

18 James, T. and Levin, H. M. (1983)Public dollars for private schools. Philadelphia: Temple University Press. Pp.104-105.

19James, T. and Levin, H. M. (1983)Public dollars for private schools. Philadelphia: Temple University Press. Pp.104-105.

20 Bland, K. (2000, April 9). Schooltax credits wide open to abuse. The Arizona Republic, p. A22.

21 Surrey, S. S. and McDaniel, P. R.(1985) Tax Expenditures. Cambridge: Harvard University Press. p. 102.

22Arizona Department of Revenue. SchoolTax Credits. Publication 707. p. 8.

23Welner, K. G. (2000, July 30). Taxing the establishment clause: The revolutionary decision of the Arizonasupreme court in Kotterman v. Killian. [On-line]. Available:http://epaa.asu.edu/epaa/v8n36.html..

24 James, T. and Levin, H. M. (1983)Public dollars for private schools. Philadelphia: Temple University Press. p.44.

25 James, T. and Levin, H. M. (1983)Public dollars for private schools. Philadelphia: Temple University Press. Pp.93-94.

26 The total amount of tuition grantsawarded to students in 1998 was $167,650. However, one STO (Institute forBetter Education), while providing their total tuition grant amount, failed toprovide the number of tuition grants awarded.  Therefore, calculating themean amount per tuition grant with the tuition grant amount ($20,180) from theInstitute for Better Education included significantly overstates the meanamount per tuition grant in 1998.

27 National Center for Education Statistics.Digest of Education Statistics 2001. (2002, March 1). Table 63-Privateelementary and secondary schools, enrollment, teachers, and high schoolgraduates, by state: 1991 to 1999 . [On-line]. Available:http://nces.ed.gov/pubs2002/2002130b.pdf

28 National Center for EducationStatistics. Digest of Education Statistics 2001. (2002, March 1). Table63-Private elementary and secondary schools, enrollment, teachers, and highschool graduates, by state: 1991 to 1999. [On-line]. Available:http://nces.ed.gov/pubs2002/2002130b.pdf

29 James, T. and Levin, H. M. (1983)Public dollars for private schools. Philadelphia: Temple University Press. p.108.

30 Frey, D. E. (1983). Tuition taxcredits for private education: An economic analysis.  Ames, IA: Iowa StateUniversity Press. pp. 94-95.

31 Belfield, C. R. (2001). Tuition tax credits: what do we know so far? Occasional paper No. 33. NationalCenter for the study of privatization in education.   Teachers College,Columbia University.

Belfield cited studiesrelating to tuition tax credit target efficiencies by Frey (1983 and 1995),West (1985), Olsen et al. (2001), and Bast (2001). The target efficienciesranged from less than 5% to no more than 15%. Belfield characterized thesimulations’ results as “reasonably consistent.”

32 Lips, C. and Jacoby, J. (2001,September 17). The Arizona education tax credit: Giving parents choices, savingtaxpayers money. No. 414. Cato Institute. p.8.

Although the Cato Institutepaper provided an estimated range for target efficiency, they state that theybased their estimate, in part, on estimates from STOs that account for only 13percent of all scholarships.  This calls into question therepresentativeness of the sampling of STOs that went into producing the datafor their target efficiency estimate. 

33 Damore, G. P. (2001)Operationalization of Arizona K-12 schools tuition tax credit legislation.Unpublished doctoral dissertation, Northern Arizona University, Flagstaff.

34 United States Census Bureau.Model-based income and poverty estimates for Arizona in 1997. [On-line]. Available: http://www.census.gov/hhes/www/saipe/estimate/cty040000.htm.

National Center for Education Statistics. Digest of Education Statistics2001. (2002, March 1). Table 37-Enrollment in public elementary and secondaryschools, by level and state: Fall 1986 to fall 2000--Continued. [On-line].  Available: http://nces.ed.gov/pubs2002/2002130b.pdf.

36 United States Census Bureau. Medianincome for 4-person families, by state. [On-line]. Available:http://www.census.gov/hhes/income/4person.html

37 Meyer, G., and Smith, E. (1999,September 23). Arizona’s individual income tax credits for schools. Phoenix:Arizona Department of Revenue.

38 Meyer, G., and Smith, E. (1999,September 23). Arizona’s individual income tax credits for schools. Phoenix:Arizona Department of Revenue.

39Arizona Department of Revenue. SchoolTax Credits. Publication 707. p. 11.

40 G. Meyer (personal communication,March 20, 2002).

41 Keegan, L. G.  (2001, December18). Tuition tax credits: A model for school choice. National Center for PolicyAnalysis. Brief analysis No. 384. Keegan writes “A key to the success of theseprograms lies in their relative simplicity….so simple, in fact, that Arizona’sentire tax credit program takes up only seven brief paragraphs in thestatute...”