Corporations can continue donating to private, parochial schools

PHOENIX – A 3-year-old law allowing corporations to divert some of their state income taxes to help students attend private and parochial schools is constitutional, the Arizona Court of Appeals ruled Thursday.
 
In a 2-1 decision, the judges rejected various arguments brought by the Arizona Education Association and other foes that the law amounts to the state providing illegal aid to these schools. They also said nothing in the law amounts to the state advancing religion, even though the majority of dollars collected end up in the hands of parochial schools.
 
But Judge Donn Kessler, in his dissent, said his colleagues were glossing over important evidence, including that the organizations which get the diverted tax dollars are allowed to deny scholarships to children if the parents do not subscribe to certain religious beliefs. He said the majority seeks to get around that constitutional problem – he believes incorrectly – by noting that the tuition scholarship organizations are the ones that discriminate, not the state.
 
"The state cannot do by indirection what it cannot do directly,'' Kessler wrote.
 
Thursday's ruling is unlikely to be the last word, with the case virtually certain to go to the Arizona Supreme Court.
 
Foes, however, have an uphill fight: That court has upheld the validity of a virtually identical tax credit for individuals approved by lawmakers in 1998.
 
Under that law, individuals get a dollar-for-dollar credit against their state income taxes for donations to organizations that provide scholarships for students to attend private and parochial schools. That credit is capped at $500 for people filing as single or married but filing a separate return, and $1,000 for couples.
 
In 2006, hoping to generate more funds, legislators agreed to allow corporations tax credits for money given to the scholarship organizations.
 
But as part of the deal, lawmakers required that the funds from corporate donations be used to give scholarships to students whose parents' income meets certain restrictions.
 
In 2007, the most recent figures available, companies diverted just shy of $12 million of state income tax obligations for the scholarships. That compares with $54.3 million in tax credits for individuals who gave to the same organizations.
 
Foes, including Democratic state legislators Rae Waters of Phoenix and Eric Meyer of Paradise Valley, neither of whom was in the Legislature in 2006, sued to overturn the law on constitutional grounds.
 
Judge John Gemmill, writing the majority decision, did not dispute that most of the dollars go to helping children attend religious schools. But that, he said, does not make the underlying law unconstitutional.
 
He said the 2006 law creating the dollar-for-dollar corporate credits contained language saying its express intent was to encourage businesses to direct some of their taxes to the scholarship organizations "in order to improve education by raising tuition scholarships for students in this state.''
 
And Gemmill said the income restriction on families who would benefit from the corporate dollars "evidences a clear desire on the part of our Legislature to provide an educational choice to parents who probably could not otherwise afford to send their children to a private school.''
 
Gemmill rejected arguments that the state is fostering religion or religious instruction. He said parents are the ones who choose where to send their children to school and, only then, apply for scholarship aid.
 
"The state is not involved in encouraging parents to choose a sectarian school over a non-sectarian school,'' the judge wrote.
 
"Sectarian schools receive aid only after parents, and not the state, have selected sectarian schools to educate their children,'' Gemmill continued. And he said the primary beneficiaries of any aid "are the scholarship recipients, not sectarian schools.''
 
Gemmill also pointed out the law makes no distinction between sectarian and non-sectarian private schools.
 
"The statute is just one of many undertakings by our Legislature to provide parents with viable alternatives beyond the traditional public education,'' he said.
 
Kessler, however, noted that state aid to public schools is given to schools based on the number of students. That means anything which encourages youngsters to go elsewhere means less money for the public system the state is constitutionally mandated to maintain.
 
"There is evidence that the state is not seeking to increase competition between the public and private school sector, but actually diverting funds from the public school to the private sector and decreasing spending for public schools,'' he wrote.
 
"This would inhibit the ability of the public schools to truly compete and improve the services they provide."