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INSIDE TODAY’S A Tribune investigation into Arizona’s Private RIGGED Schools Tax Credit Program PRIVILEGE SPORTS Fitzgerald pushes himself to keep improving, AA4

ENTERTAINMENT Museum showcases legacy of Chicano THOMAS BOGGAN, TRIBUNE creativity, AA8 The offi ce of the Arizona Scholarship Fund in Mesa. Today’s Tomorrow’s weather: weather: High 110, High 110, INSIDE TODAY’S TRIBUNE, A4-A10 WEDNESDAY, AUG. 5 FRIDAY, AUG. 7 Low 81 Low 81 THE FIX: The tuition tax credits law was supposed to HOW-TO GUIDE: Many private PERKS: Executives at two of Sunny Sunny revolutionize school choice for disadvantaged children. Instead schools teach parents how to skirt Arizona’s largest scholarship it fostered a rigged system that keeps private education a the law by lining up donors for charities are using income tax INSIDE TODAY’S TRIBUNE privilege for the already privileged. PAGE A4 their children. donations to enrich themselves. This section Take 2 NO OVERSIGHT: The state has no way of ensuring that PLOT TWIST: The tale of Maricopa ALTERED VISION: Twelve years Today’s quick take, A2 Sports, AA2 Local news, A3-27 Entertainment, AA8 $55 million a year in tax credits really goes toward scholarships County Schoolhouse Foundation ago, Trent Franks envisioned a Bulletin Board, A17 Theater, AA10 for private school students as the law intended. PAGE A10 begins with criminal indictments statewide system to enable poor Wall Street Journal, A28 Television, AA11 and fraud but ends as an example kids to go to private schools. Most Obituaries, A33 Movies, AA12 OUR RESEARCH: Records, data, parents show how the system of tuition tax credits’ promise for of the charities that formed as a Go and Do, A20 Celebrities, AA15 PAGE A10 Nation & World, A31-33 Puzzles & Advice, AA14 works outside the courtroom and the statehouse fl oor. serving the underprivileged. result went in a different direction. Perspective, A34-36 Travel, AA13 Classifi ed, A37 Weather, AA15 MONDAY: A Freedom Communications Join reporters Ryan Gabrielson and Michelle Reese for a live Q&A on our Web site at 10 a.m. Newspaper © 2009 EVTRIB.COM TUESDAY: Get an early look at the second installment of Rigged Privilege. An edition of the East Valley Tribune ALSO: Databases that show how many donations each school tuition organization has received, the scholarships they have given, and enrollment fi gures by school. Vol. 1, No. 109 16319063 A4 • SUNDAY, AUGUST 2, 2009 • MESA TRIBUNE EastValleyTribune.com RIGGED PRIVILEGE A Tribune investigation into Arizona’s Private Schools Tax Credit Program

“Even the poorest child now becomes royalty in the system. In the past, only wealthy parents could afford their children such an opportunity.” TRENT FRANKS AUTHOR OF THE PRIVATE SCHOOL TAX CREDIT LAW AND NOW A Private schoolU.S. CONGRESSMAN WROTE IN A 1999 COLUMN credits IN THE TRIBUNE rife with abuse

By RYAN GABRIELSON and MICHELLE REESE TRIBUNE — nly God and the health of loved ones rank high- Oer with Beth and Doug Fitch than an elite edu- cation for their two boys. The $20,000-a-year cost is exorbitant, Beth said, even though the Fitches are both personal injury attorneys and own an Ahwatukee Foothills home valued at a half-mil- lion dollars, Maricopa County property records show. But the Fitches haven’t had to worry about the bill. Arizona has paid the price.

The state’s Private School Tu- school administrators, school ition Tax Credits program cov- tuition organization executives, ers the cost of private education, tax experts and government of- often for children whose parents fi cials. could afford to pay it themselves The newspaper’s reporting — while allowing affl uent fami- provides the most complete ac- THOMAS BOGGAN, TRIBUNE lies to reduce the amount of in- count to date of whether tax STARTING YOUNG: The Arizona Scholarship Fund offers parents “savings accounts” to bank away come tax they pay into the state’s credits have torn down the eco- income tax donations starting the year they conceive their child. general fund. nomic barriers that block under- To date, Arizona’s main bank privileged children from private the state’s private schools hiked dents are educated in private of $100,000 a year. Married account has lost $350 million to classrooms, as lawmakers prom- tuition dramatically, pushing the classrooms than in 1996, com- couples with dependents — who private schools. The price tag ised. cost of private education further pared with more than 280,000 make the majority of these do- is growing as the state grapples The Tribune investigation from the grasp of middle- and additional students who entered nations — must earn at least with the most serious fi nancial found: low-income families. public schools. $41,000 a year to take full advan- crisis in its history, and people • An untold number of STOs, • Tax credits have failed to By design, Arizona’s tuition tage of a tax credit, now capped who depend on the general fund schools and parents are using increase minority students’ ac- tax credit program is unregu- at $500 for individual taxpayers — public school children, the the tax credits in ways that vio- cess to Arizona’s private schools. lated. No state agency has the and $1,000 for married couples disabled, the poor and the sick late federal tax laws governing Students at the schools receiving authority to prevent or penalize fi ling jointly. — face severe cuts in services. charitable donations. the most scholarship money re- even the most brazen miscon- Because most donors contrib- Under the program, taxpayers • Nearly two-thirds of all mained overwhelmingly white at duct. ute for specifi c students, even give money to nonprofi t charities STOs failed to spend 90 percent a time when the state’s Hispanic For instance, the state law some tax credit supporters ques- called school tuition organiza- of their donations on scholar- population boomed. specifi cally bars parents from tion whether the system as a tions, or STOs for short. STOs ships — as required by state law Lawmakers promised tax donating to an STO and claim- whole expands access to private give scholarships to children for — since 2003, the year the STOs credits would make private edu- ing a tax credit to pay their own classrooms. private school tuition, and the began fi ling annual reports with cation available to all Arizona child’s tuition. STOs need to “search their state provides donors a dollar- the state Department of Rev- families. Yet schools and parents violate souls,” said Clint Bolick, board for-dollar tax credit in exchange enue. “Even the poorest child now this prohibition with impunity, chairman of the Arizona School for their contribution. • Executives at two of the larg- becomes royalty in the system,” the Tribune has learned through Choice Trust, a scholarship char- The tax credit law, signed by est STOs have used tax credit Trent Franks, author of the pri- numerous interviews with those ity that focuses donations on low- Gov. Fife Symington in 1997, is donations to enrich themselves, vate school tax credit law and who use tax credits. income students. touted as a tool to make private buying luxury cars, real estate now a U.S. congressman, wrote Some schools give parents Bolick, also a constitutional education more accessible to and funding their own outside in a 1999 column in the Tribune. step-by-step instructions on how law expert at the Goldwater In- families who could not otherwise for-profi t businesses. “In the past, only wealthy par- to game the system by lining stitute, argues the tax credits are afford it. • A majority of tax credit do- ents could afford their children up other donors for their child. intended to benefi t students who Instead, it has fostered a nations are earmarked to give such an opportunity.” One private kindergarten even do not normally enroll in private rigged system that keeps private scholarships to students already His rhetoric never became re- pairs up parents to exchange schools. Too often, the income education a privilege for the al- enrolled in private schools, no ality. tax credit donations — an illegal tax donations do not fulfi ll that ready privileged. matter how much money their Private schools grew slightly quid-pro-quo transaction under mission. The Tribune reviewed thou- parents earn. Just seven of the during the tax credit era, though federal tax law. In fact, despite the political sands of pages of state and fed- state’s 55 STOs use fi nancial there is little evidence the sub- The tax credits inherently promises, the tax credits were eral tax records and analyzed need as the primary factor in de- sidies took signifi cant numbers benefi t affl uent families. never equipped to do so. private school enrollment data ciding who gets tuition money. of students out of public schools Research by the state revenue “I support universal school from the past 12 years. Reporters • Even as they took in mil- and off the taxpayer rolls. State- department found that tax credit — interviewed dozens of parents, lions of dollars in scholarships, wide, roughly 6,900 more stu- donors typically earned upwards CONTINUED ON A5 EastValleyTribune.com MESA TRIBUNE • SUNDAY, AUGUST 2, 2009 • A5

“I support universal school choice. And if we had a viable program to create it, I’d support it enthusiastically. This program was not designed to provide universal school choice.”

CLINT BOLICK BOARD CHAIRMAN OF THE ARIZONA SCHOOL CHOICE TRUST, A SCHOLARSHIP CHARITY THAT FOCUSES DONATIONS ON LOW- INCOME STUDENTS, PICTURED IN HIS OFFICE THOMAS BOGGAN, TRIBUNE

FROM PAGE A4 worthy of tax exemption due to plaining why a student merits on two college professors’ sala- Center in Kansas City, Mo. — their public service. financial aid. ries. Tax credit scholarships ini- Tax credit donations ear- choice,” Bolick said. “And if we Donations to these nonprof- However, Yarbrough said tially just lowered Graham’s pri- marked with “recommendations” had a viable program to create its are not supposed to be ear- those committees also have lists vate school costs. paid about half of the tuition for it, I’d support it enthusiastically. marked to benefit specific indi- showing how much in donations Then, in 2006, Summit rock- Margaret Borns’ son to attend This program was not designed viduals. specific students have received eted its tuition to almost $10,000 Seton Catholic High School in to provide universal school ASF alone markets savings on their behalf. a year. Chandler. choice.” accounts for specific students. “That’s one of the pieces of Rather than pull Graham from A number of family friends But the private school tax credit information they have,” he said. the school, Paul said they tried to don’t have children of their own, SCHOLARSHIPS FOR FETUSES system is fraught as well with “They are absolutely free to con- get the increase covered with tax she said, and are willing to do- It is the fetus who can ben- other activities that, at best, skirt sider that or disregard that or do credit donations. The Bosches nate their income tax dollars for efit most from the state’s private federal law. a combination.” asked colleagues and friends at her family’s private education school tax credits, said Cham- For instance, taxpayers are But several parents who so- their church to donate on Gra- costs. Bria Henderson, founder and prohibited by state statute from licit private school tax credit ham’s behalf. Borns said her family can executive director of the Arizona taking an income tax credit for donations told the Tribune that Money began to roll into their afford to pay Seton’s tuition — Scholarship Fund (ASF). donations that benefit their own “recommendations” are far more account at the Arizona Scholar- nearly $8,000 a year for active “Some families know right child. So parents recruit rela- than mere suggestions. ship Fund. Catholics. Tax credit scholar- from the moment of conception tives, friends and others to do- Tuition “wasn’t totally free at ships allow her to make an addi- that this child is going to private nate to an STO to cover a share, UNCHARITABLE GIVING first, but then we got to a point tional donation to Seton with the school,” she said. or all, of their child’s private Working hard to solicit dona- where for us there was no cost,” money that would otherwise pay ASF allows parents to bank school costs. tions from family, friends and col- Paul said. for her son to enroll. away tens of thousands of dol- The scholarship charities that leagues, Beth Fitch said she has There was even money left Keri Griffith-Terry solicits do- lars in tax credit donations for accept earmarked donations managed to get her sons’ entire over. nors by e-mail to help pay for her years — from the moment they — which they term “recommen- tuition bill paid through scholar- Paul knew last year that ASF son to attend Grace Community conceive their child. These dona- dations” — track how much ships for several years. Her old- had received more in donations Christian School in Tempe. tions go into each family’s “K-12 specific students or schools have est just finished eighth grade at for Graham than they needed It is more comfortable for Education Savings Account,” ac- received in donations. Summit School of Ahwatukee to pay his tuition. But a family her to ask for money in writing, cording to its Web site. Executives at STOs that ac- in Phoenix; her youngest at- friend whose child also attended Griffith-Terry said, than in per- Such accounts exponentially cept recommendations contend tends Desert Garden Montes- Summit was suddenly having fi- son, though she has heard that increase the power of tax credit they are but one of several fac- sori, where class sizes are kept in nancial trouble. other families throw dinner par- scholarships by collecting money tors that determine which stu- single digits. The solution was simple. Paul ties to recruit income tax donors over a long period to pay for even dents receive scholarships and “I understand that there is said he called ASF to request that to pay for their children’s private the most expensive private edu- how much. quite a dispute as to whether this whatever extra cash remained in schooling. cation. Rep. Steve Yarbrough, R- is something that should contin- their account be transferred to Several STO executives said They also violate federal tax Chandler, executive director and ue in Arizona,” Beth said of pri- their friend’s account with the they know that parents organize law. co-founder of the Arizona Chris- vate school tax credits. But she scholarship charity. ASF made to trade tax credit donations, Arizona statute requires that tian School Tuition Organiza- feels justified in soliciting donors the transfer, he said. a practice that violates federal STOs be “501(c)3” nonprofit tion (ACSTO), said his charity for her kids, even though she and Henderson confirmed that tax law. Harry Miller, executive charities. The Internal Revenue has selection committees that her husband were paying the bill ASF used to allow families to director of the Tuition Organiza- Service bestows that designation consider scholarship applicants’ themselves before tapping into shift money from one account to tion for Private Schools, said that on organizations it categorizes as tax filings along with letters ex- tax credits. “My two children another, as though the charity when he sees a set of suspicious would have fallen through the were a bank. She said ASF ended donations that look like a trade, cracks at a public school.” that practice last year. he rejects them. “Some families know right Seven years ago, Paul and Such transactions raise But the STOs overall do little from the moment of conception Pam Bosch decided their son, doubts about whether STOs are to monitor their donors. Further, that this child is going to Graham, needed smaller class actually engaged in charity work, parents and schools sometimes sizes and more individual atten- which is a condition of their tax- even work around STOs, using private school.” tion than his public elementary exempt status. donations to multiple scholar- CHAMBRIA HENDERSON school could provide. “That doesn’t work under ship charities to conceal the ille- FOUNDER AND EXECUTIVE DIRECTOR Summit School was the right federal law, that’s for sure,” said gal exchanges. OF THE ARIZONA SCHOLARSHIP fit, Paul said, and the $6,000 a Bruce R. Hopkins, a tax attorney — FUND (ASF) year in tuition was manageable who runs the Non-Profit Law CONTINUED ON A6 A6 • SUNDAY, AUGUST 2, 2009 • MESA TRIBUNE EastValleyTribune.com RIGGED PRIVILEGE A Tribune investigation into Arizona’s Private Schools Tax Credit Program

FROM PAGE A5 — “If somebody is going to cheat on their taxes, the STOs are not in the best position to police it, but they do their best,” said Ellis Carter, a Phoenix attorney spe- cializing in nonprofi ts who repre- sents ASF. Deceit by parents and schools aside, the state’s largest STOs work extensively to ensure par- ents can direct income tax dona- tions to their own children. Henderson, ASF’s execu- tive director, acknowledged that STOs choose their wording carefully to describe their opera- tions. “We’re using semantics to get around it,” Henderson said of the federal tax law that prohibits scholarship charities from oper- ating on earmarked donations. “Recommendations” are al- lowed, she said. “Designations” are strictly forbidden. In reality there is little differ- ence between the two. Federal tax code forbids tax- exempt charities, including STOs, from operating primarily “for the benefi t of private inter- ests.” STOs that allow specifi c stu- dent recommendations received more than $30 million in tax credit donations last year. TIM HACKER, TRIBUNE “If I were a lawyer advis- DOING IT RIGHT: Hispanic students have become a majority at St. Mary’s Catholic High School in Phoenix, which in 2008 received $1.5 ing these groups, this would be million in tax credit scholarships. something I would be worried about,” said John D. Colombo, a A Tribune analysis of Arizona through data documenting stu- Ethnicity in Arizona schools University of Illinois law profes- private school enrollment data, dent ethnicity. sor who specializes in tax-ex- likely the fi rst such examination Private schools in the state Private school students Public school students empt organizations. here, found that the 20 schools have grown only slightly, about 2007-08 October 2008 “I would be sweating at night receiving the most income tax 6,900 students the past decade. Asian Black Asian over the private benefi t issue.” money have been largely im- Most of that expansion has come Indian Indian mune to demographic shifts tak- at new campuses that opened af- Black WHITE OUT ing place around them. ter the advent of private school Eleven Hispanic students at- Hispanics comprised 15 per- tax credits. tended Chandler’s Valley Chris- cent of enrollment at these pri- Gilbert Christian Schools, for- tian High School in 1996, the vate schools in 1996. Their share merly Surrey Garden Christian Hispanic White year before lawmakers created remained unchanged in 2008. School, is one of these new cam- White Hispanic private school tax credits. By comparison, Hispanics puses. Ninety-one percent of its Minority students hardly make up 42 percent of students students are white, enrollment registered at all at the religious in the state’s public schools, up data shows. In north Scottsdale, campus, where 209 out of 224 nearly 10 percentage points af- Notre Dame Catholic Prepara- students were white, according ter a decade of massive Hispanic tory opened in 2002 and now NOTE: Does not include 29 of 334 schools that did not report SOURCE: Arizona Department of Education SOURCE: National Center for Educational Statistics to fi gures the private school re- population growth in Arizona, educates some 900 students, 87 ported to the U.S. Department of data from the state Department percent of them white. TRIBUNE Education. of Education shows. Some of tax credits’ chief pro- rollment. school. Twelve years later, Valley The top private schools were ponents agree that schools have Yarbrough, the state lawmak- The Catholic campus com- Christian counted 10 Hispanics 80 percent white in 1996. White used the infusion of millions of er and Arizona Christian School petes directly with the state’s in its classrooms. students continue to fi ll the vast income tax dollars to increase Tuition Organization executive, most elite private schools — es- Tax credits were supposed majority of spots — 78.5 percent tuition, rather than the diversity co-founded Valley Christian in pecially Brophy College Prepa- to revolutionize school choice in in 2008, a drop of less than 2 per- of their campuses. 1981 to offer East Valley families ratory — in the classroom and, Arizona. Income tax donations cent. “We have had some schools an education grounded in their with particular intensity, on the would open private schools to Private schools do not re- that have raised their tuition in- Christian faith. football fi eld. the masses, supporters claimed. lease information about their stead of adding more desks,” said Through the scholarship char- St. Mary’s is in downtown The revolution never came. students’ household income. The Henderson, the Arizona Scholar- ity, Yarbrough has helped Valley Phoenix, surrounded by some of Rather, tax credits appear to only marker to such demograph- ship Fund executive. Christian receive more than $1 the Valley’s oldest and poorest have stalled school choice. ic change on their campuses is But even schools that added million a year from tuition tax neighborhoods. students, like Valley Christian, credits. It was a diverse campus even didn’t necessarily add minori- “It has been very, very impor- before private school tax credits “There are a lot of kids at Valley ties. tant,” Yarbrough said, “because began providing the school mil- Christian High School today who Few schools receive as much there are a lot of kids at Valley lions in new cash for fi nancial are doing great things, who will do tax credit scholarship money as Christian High School today who aid. Hispanics fi lled 46 percent of the faith-based Chandler school. are doing great things, who will its seats. Today, Hispanics make great things in the future, who would And its enrollment swelled by 87 do great things in the future, who up a signifi cant majority of St. not be able to be there but for the percent from 1996 to 2008, the would not be able to be there but Mary’s students, 53 percent, just scholarship tax credit.” federal enrollment data shows. for the scholarship tax credit. like the community around the But the 195 additional students Large numbers.” school, data reported to the U.S. REP. STEVE YARBROUGH, R-CHANDLER who now attend Valley Christian Education Department shows. EXECUTIVE DIRECTOR AND CO-FOUNDER are nearly all white, and white SERVING THE VULNERABLE “For lots of different reasons, OF THE ARIZONA CHRISTIAN SCHOOL — TUITION ORGANIZATION (ACSTO) students account for 95.7 per- St. Mary’s High School con- cent of the private school’s en- siders itself second to no private CONTINUED ON A8 A8 • SUNDAY, AUGUST 2, 2009 • MESA TRIBUNE EastValleyTribune.com RIGGED PRIVILEGE A Tribune investigation into Arizona’s Private Schools Tax Credit Program FROM PAGE A6 Private school enrollment — School enrollment growth in Arizona I think we here at St. Mary’s Enrollment at Arizona’s private schools has increased slightly since the creation of tuition tax credits. Public school enrollment have been able to serve greater But public schools have grown far more, taking on an even larger share of the state’s schoolchildren. (kindergarten through 12th grade) Phoenix’s population,” said Rob 44,710 Rogers, the school’s assistant principal. 1999-2000 867,135 Just like its Catholic peer, Bro- phy, St. Mary’s receives roughly 51,590 a million dollars or more a year through tax credit scholarships. 2007-2008 1,146,765 Brophy has made strides in di- 200,000 400,000 versifying its enrollment — His- 0 600,000 800,000 1,000,000 panics are about 15 percent of NOTE: National Center for Education Statistics private school enrollment reports compiled every two years students, up from 8 percent in SOURCE: Arizona Department of Education and National Center for Education Statistics TRIBUNE 1996, but that does not refl ect their neighborhoods’ diverse ra- directly with the Roman Catholic school’s $8,000 tuition rate. tions like the Arizona Christian evaluate whether it has increased cial makeup. Dioceses of Phoenix and Tucson, As the economy continues to School Tuition Organization to tuition scholarships for low- and The difference appears to according to state revenue de- shrink and shed jobs, a greater fund their children’s private edu- middle-income students as well, be which STO is providing the partment records. number of St. Mary’s families cation through earmarked dona- Mulligan said. scholarships. St. Mary’s gets The Phoenix diocese’s schol- need assistance, said Liz Hansen, tions. If it has not, he added, the dio- most of its scholarships through arship charity, the state’s second St. Mary’s fi nance director. “People who don’t like student cese will eliminate student rec- the STO operated by the Diocese largest, has long permitted do- Now there is likely to be far recommendations have a stereo- ommendations. of Phoenix. But Brophy receives nations earmarked for specifi c less money available to help. type that it’s welfare for the rich,” “We want to tilt the scale to a majority of its scholarships schools. To ensure underprivi- In a major reversal of its pre- Mulligan said. “I think that’s the families that need it,” Mulli- from an STO created specifi cally leged families benefi t, it hired vious philosophy, the Phoenix di- where people bring up a signifi - gan said. “We would never want for the school. an outside company to assess ocese this year began accepting cant concern as to, ‘Why is the to do something that ends up Of the 20 private schools that families’ fi nancial need before donations that explicitly “recom- Catholic church doing that?’” disfavoring the more vulnerable. receive the most tax credit mon- deciding which students receive mend” which student should re- Mulligan said the Phoenix The last thing we’re going to do is ey, three experienced the same scholarships and how much of a ceive a tax credit scholarship. diocese will spend a majority of create a system that takes people Hispanic enrollment growth as student’s tuition the scholarship Paul Mulligan, executive di- the earmarked contribution for out of the game.” the state’s public schools, the will pay. rector of the Phoenix diocese’s the students who donors intend Tribune analysis found. That selection process fun- STO, said the Catholic scholar- their money to benefi t. Then, the ‘NOT WHAT I FOUGHT FOR’ St. Mary’s, Bourgade Catholic neled larger sums of money to ship charity is permitting recom- remaining dollars will go toward Arizona’s tuition tax credits High School in east Phoenix, and schools like Bourgade and St. mendations with some trepida- scholarships for low-income stu- have been under legal attack Salpointe Catholic High School Mary’s, where the fi nancial need tion. dents. from almost the moment they in Tucson each saw their minor- is greatest. The change comes after the The Phoenix diocese is closely became law. ity population increase substan- “I don’t think there’s any way diocese’s tax credit donations monitoring its recommendation Their continued existence has tially. And each received a signifi - they could go here if they had to dropped roughly $1 million last program to ensure that it doesn’t depended more on courtroom cant majority of their tax credit pay full tuition,” Rogers said of year as Catholic school parents just benefi t affl uent families. In — scholarships from STOs affi liated St. Mary’s students and the high increasingly turned to organiza- six months, the STO plans to CONTINUED ON A9

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FROM PAGE A8 pus, which provides students al- — most one-on-one attention from Private School Tuition Tax Credits timeline See an interactive version of this timeline at victories, confirming the cred- teachers. http://www.eastvalleytribune.com/page/taxcredits its’ constitutionality, than on Another parent at the meet- political support. Many of the ing groused aloud about the April 7, 1997: Gov. Fife Symington signs Arizona’s Private School Tuition Tax Credits into law; taxpayers can get a credit early and most important rul- school’s expensive tuition, of up to $500. ings came through the work of Bolick said. Community Mon- attorney and school choice ad- tessori’s director acknowledged September 1997: Opponents file lawsuit against the new law; proponents counter-sue in October. Kotterman v. Killian is the result. vocate Clint Bolick. preschool tuition is high but “I defended them up to the added that kindergarten stu- Spring 1999: Arizona Supreme Court upholds the tax credit law in Kotterman v. Killian; U.S. Supreme Court later declines Arizona Supreme Court,” said dents enroll for free. to review the case. Bolick, of the Goldwater Insti- “And I’m thinking, ‘Gee, that’s Feb. 15, 2000: Winn v. Garriott filed, claiming the tax credit is a violation of the Establishment Clause of the First tute, a Phoenix think tank that interesting,’” Bolick recounted Amendment: “Congress shall make no law respecting an establishment of religion.” advocates for limited govern- during an interview in June. 2001: Tax credit raised to up to $625 per joint tax filers. ment. He wondered if it was a public In the 1990s, as Arizona tax charter school rather than a 2003: Lawmakers adopt bill that requires reporting for the first time by school tuition organizations. Law takes effect Jan. 1, 2004. credits blazed a new trail for the private school. Then the school national school choice move- director explained how income 2005: Tax credit raised to up to $825 per joint tax filers. ment, Bolick co-founded the In- tax dollars pay for kindergarten 2006: Tax credit raised to up to $1,000 per joint tax filers. stitute for Justice in Washington tuition. 2006: Arizona Legislature creates a corporate private school tuition tax credit set to expire in 2011. The corporate credit D.C. to support such Libertarian Community Montessori, the has a cap — $10 million — with a 20 percent increase each year allowed until the law expires. Law puts regulations endeavors. director told Bolick and the oth- on who can receive the corporate tax credit scholarships and limits the scholarship amount. A few years ago while search- er parents, pairs up families to ing for a kindergarten for his exchange tax credit donations Sept. 19, 2006: Green v. Garriott filed, disputing the corporate private school tuition tax credit. son, Bolick saw firsthand the to benefit each others’ children. March 12, 2009: The Arizona Court of Appeals upholds the corporate scholarship tax credit program with Green v. Garriott. rigged system that private “My jaw dropped and I March 25, 2009: The Arizona Supreme Court rules as unconstitutional a voucher program for students with special needs school tax credits have become. thought, ‘This is horrible,’” or who have previously been in foster care. The ruling cites an Arizona Constitution provision that prohibits the He and his wife went to an ori- Bolick said. “This is not the pro- use of state funds to aid private and religious schools. The Cain v. Horne decision leads to legislation to create a entation meeting at Community gram I fought for.” new tax credit. The ruling also reaffirms Kotterman v. Killian, in which tax credits that fund scholarships were ruled Montessori School. — constitutional. Their son attended preschool CONTACT WRITER: (480) 898-5630 April 21, 2009: 9th U.S. Circuit Court of Appeals ruling says a judge was wrong to dismiss the challenges to the 1997 at the tiny north Phoenix cam- or [email protected] individual income tax credit law. Ruling says plaintiffs have enough of a case to continue with the challenge, specifically because some of the school tuition organizations limit scholarships to religious schools. May 14, 2009: School choice advocates — as a response to the April 21, 2009, ruling — ask a federal appeals court for a “We want to tilt the scale to the larger panel to review the three-judge panel’s ruling that the Arizona individual tax credit may be unconstitutional. families that need it. We would never May 27, 2009: Legislators approve “Lexie’s Law,” which expands an existing corporate tax credit law and allocates $5 want to do something that ends up million to provide scholarships to kids with special needs or who were previously in foster care. The tax credit is disfavoring the more vulnerable.” aimed at families who previously benefited from a state voucher program that was later ruled unconstitutional.

PAUL MULLIGAN May 29, 2009: Gov. Jan Brewer signs “Lexie’s Law.” EXECUTIVE DIRECTOR OF THE PHOENIX July 13, 2009: Brewer signs a law that allows insurance companies to participate in the previously limited corporate DIOCESE’S STO tax credit and eliminates the 2011 sunset on it. Brewer signs another law that allows for tax credit donations to go directly from an employee’s paycheck to school tuition organizations. Affordable Dentistry Accepting New Patients

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www.arizonadentalservice.com Cosmetic Dentistry Specialist 16319765 ARIZONA DENTAL SERVICE 480-835-1536 1629 E. University Drive, Mesa, AZ 85203 (Between Stapley & Gilbert) A10 • SUNDAY, AUGUST 2, 2009 • MESA TRIBUNE EastValleyTribune.com RIGGED PRIVILEGE A Tribune investigation into Arizona’s Private Schools Tax Credit Program Tax credit law has no teeth

penalize STOs for violating the 90 percent rule because state law doesn’t specify how much time scholarship charities have By RYAN GABRIELSON often as people think, there’s re- to spend income tax donations. and MICHELLE REESE ally no enforcement mechanism,” “It goes back to the point that TRIBUNE said Ellis Carter, a Phoenix at- I’ve got, really, no authority over — torney who focuses her practice them,” she said. hen it comes to on nonprofi ts and represents The state attorney general policing Arizona Arizona Scholarship Fund, the and auditor general consider Wcharities, the long third-largest STO. nonprofi t charities outside of arm of the law is a The state law that governs their jurisdiction. paralyzed limb. private school tax credits has Widespread violation on the The state’s Private School just two clear regulations — both 90 percent rule is a symptom of Tuition Tax Credit program has of them unenforceable. problems with the state tax cred- made the regulatory paralysis The fi rst restriction forbids it law itself. especially obvious. Nonprofi t parents from taking a tax credit “The STO statute is incred- charities control every part of for a donation that paid tuition ibly ambiguous,” said Carter, the the $55-million-a-year tax sub- for their own child. DARRYL WEBB, TRIBUNE nonprofi t attorney. “It really is sidy program, which converts But parents can commit that EYES OF THE STATE: Georganna Meyer, chief economist at the horribly written.” donations of income tax dollars brand of tax fraud with impunity Arizona Department of Revenue, is the only state offi cial who Scholarship charity execu- into tuition scholarships for pri- because the state never learns oversees private school tax credits. tives argue that the system vate school students. which students receive tax credit works well as is. A Tribune investigation of pri- scholarships. zona’s tax credits, a species of school.” STOs police themselves, said vate school tax credits found the Only STOs know which tax- government subsidy of which She jokes that her title should Harry Miller, executive direc- subsidies have largely failed to payers make donations and private school tuition donations read, “Queen of tax credits.” tor of the Tuition Organization expand access to private educa- which private school students are by far the largest. But the economist ultimately for Private Schools. Until last tion for low- and middle-income benefi t. Over the private school cred- has no control over the private month, Miller was president of families, as lawmakers prom- Scholarship charities provide its’ 12-year history, Meyer has school tax credits and the STOs the STO industry group, the Ari- ised. the state with aggregate totals tirelessly worked to track how they fund. zona School Tuition Organiza- Instead, the state law created of donations received and tuition the system operates, who ben- And Meyer is unable to en- tion Association. an industry of unaccountable paid each year, but nothing else. efi ts and whether scholarship force even the state law’s sim- When particular “bad play- middlemen — school tuition or- The Arizona Christian School charities follow the law, state tax plest provision. ers” are operating inappropri- ganizations, or “STOs” for short. Tuition Organization goes so far records show. Scholarship charities must ately, other STO executives will A handful of these scholarship as to routinely shred its applica- She peppers STO executives use 90 percent of their income advise the wayward nonprofi ts charities work exhaustively to tion materials after it cuts schol- with e-mails and phone calls tax donations to pay for private on how to reform. provide fi nancial aid for under- arship checks each spring, said when their fi nancial statements school tuition. That limits how “The last thing we want is an privileged students, and spend Steve Yarbrough, the STO’s ex- are incomplete. Or when the much the STOs can spend on STO that’s out of compliance in miniscule amounts on adminis- ecutive director. Destroying the charities write tuition checks to themselves, at least theoreti- any way,” Miller said. tration. records protects families’ private parents, not schools, raising con- cally. STOs also receive contribu- A majority of STOs, however, fi nancial information, he said. cerns that the income tax dollars During the past six years, tions for private school scholar- blatantly violate the few regula- Without scholarship details, do not always fund private edu- nearly two-thirds of STOs spent ships through a much smaller tions that lawmakers included in there is no evidence to prove the cation. less than 90 percent on scholar- corporate tax credit program. the statute, state and federal tax crime, said Georganna Meyer, “I fuss with them about that,” ships, according to state tax re- Unlike the tax credits for indi- records show. the state revenue department’s Meyer said. “I’ve told them be- cords. viduals, the corporate program Offi cially, these nonprofi ts re- chief economist. fore, that the statute says the Most have improved in this is tightly regulated, limiting do- port to the Arizona Department Meyer alone oversees Ari- money goes … for a child to go to a area, but some fell short by a nations and requiring that schol- of Revenue and the Internal Rev- wide margin. arships go to underprivileged enue Service. “The last thing we want is an State records show the Chil- students who are transferring But the state agency lacks the dren’s Scholarship Network of from public schools. Corporate tools to detect even rampant mis- STO that’s out of compliance Arizona hasn’t spent any of the donations account for less than conduct. And the IRS has shrunk in any way.” $47,000 it received in contri- a quarter of all income tax credit its auditing force dramatically in butions for tuition. The White money. HARRY MILLER — recent years. EXECUTIVE DIRECTOR OF Mountain Tuition Support Foun- CONTACT WRITER: “In Arizona, unless the IRS THE TUITION ORGANIZATION FOR dation used only 61 percent of its is going to come out and audit PRIVATE SCHOOLS $400,000 on scholarships. (480) 898-5630 them, which doesn’t happen as Meyer said she has no way to or [email protected] Tribune research allows for in-depth look at tuition tax credits

TO OUR READERS er side wrong. courtrooms and the statehouse fl oor. schools that received the most tax credit — As the state Legislature debated Private schools do not release infor- scholarship money in 2008. or years, the debate over Arizo- whether to expand the private school tax mation about the income levels of their If tax credits provide access to pri- na’s Private School Tuition Tax credits in May, the Tribune began an in- students. They do, however, provide the vate schools for all students, then private F Credits has been mired in de- vestigation into how the program oper- U.S. Department of Education with en- campuses should have seen similar, if not bate over whether the subsidy ates. rollment data that breaks down their equal, Hispanic enrollment growth as serves a public good. Proponents argue Reporters scrutinized records from student body’s ethnic demographics. public schools. But nearly all did not. it is advancing school choice, the idea in the Arizona Department of Revenue, Arizona experienced a seismic shift in To ensure its methodology was sound, which parents decide what kind of edu- the Internal Revenue Service, the Ari- its demographics between 1996 and 2008, the newspaper presented its research to cation their children receive, improving zona Corporation Commission, and the particularly among school-age children. two of Arizona’s leading demographers the public schools, too, by creating com- U.S. Department of Education, as well Hispanics, long the state’s largest mi- — Bill Schooling at the Arizona Depart- petition for students. Opponents coun- as scholarship charities’ internal fi nance nority, nearly became a majority of stu- ment of Commerce and Jim Q. Chang at ter it’s little more than rhetoric cloaking records, to piece together how the tax dents in the public schools. the Arizona School Facilities Board. The an effort to take money from the public credits work and who benefi ts. Many The Tribune analyzed enrollment demographers confi rmed that the Tri- school system. interviews with private school parents data from the National Center for Educa- bune’s analysis has reached an accurate No side can prove defi nitively the oth- explained how the system works outside tion Statistics for the 20 Arizona private conclusion. Mesa Weather WHERE LOCAL NEWS IS FIRST records keep falling • A7

Winner of the Pulitzer Prize for Local Reporting Mesa school passes mold tests • A11 Wednesday, August 5, 2009 EastValleyTribune.com >> Online every day. In print Wednesday, Friday and Sunday for FREE!

INSIDE TODAY’S SUNDAY, AUG. 2 THE FIX: The tuition tax credits law was supposed to revolutionize school choice RIGGED PRIVILEGE for disadvantaged children. Instead, it fostered a rigged system that keeps private A Tribune investigation into Arizona’s education a privilege for the already Private Schools Tax Credit Program privileged. NO OVERSIGHT: The state has no way of ensuring that $55 million a year in tax credits really goes toward scholarships for private school students as the law PLICATION FOR ADMISSION intended. rinit SCHOLARSHIP FUNDING OUR RESEARCH: TChristian SchoolY Records, data, parents show how the system works outside the 2009/2010 courtroom and the statehouse fl oor.

Christ Centered SPORTS Classical Education Tuition Organization 10 questions for Students from families at all income levels have the opportunity to receive a scholarship ASU heading into to pay all or part of their tuition. These scholarships are funded through Arizona state income tax money that tax payers have redirected to a Scholarship football season, AA4 (STO). Through legislation passed in 1997, the state allows a dollar-for-dollar credit against your tax obligation, up to $1,000 per year for a married need to coupleitemize ($500 deductions single). in You or your taxBY advisor can view the law, ARS 43-1089,THE at www.azleg.state.az.us/ BOOK g ars/43/01089.htm. This is not a deduction. You do not order to claim your tax credit.

SCHOOLSScholarships allow families to keep up with the tuition costs SKIRT necessary to cover risin THE LAW expenses, provide competitive salaries to attract the best teachers, and to further expand the IN TODAY’S PAPER, A4-A6 the curriculum and programs available to each student. Therefore, your redirected is to increase tax dollars bless every aspect of the school. HOW-TO GUIDE: Many private schools a ENTERTAINMENT t to you! As a school family, our goal teach parents how to skirt the law by lining Hangar Cafe in All of these blessings are at no cos up donors for their children. PAGE A4 donations to STOs by 30% or more in 2009. We are happy to further explain how you Chandler offers a can direct your taxes to Christian Scholarship Foundation (formerly PCSSF) or Arizon PLOT TWIST: The tale of Maricopa County unique view, AA9 Christian School Tuition Organization (ACSTO), or you can learn more directly from Schoolhouse Foundation begins with their websites, www.pcssf.org and www.acsto.com. criminal indictments and fraud but ends as an example of tuition tax credits’ promise PAGE A6 Today’s Tomorrow’s Yes! I am committed to directing my 2009 Arizona state income tax to CSF for serving the underprivileged. weather: weather: or ACSTO. FRIDAY, AUG. 7 High 112, High 110, from my Low 88 Low 88 PERKS: Executives at two of Arizona’s Partly Cloudy Partly Cloudy Not Applicable. I receive (Thisa 100% is true refund for very of fewall moneyTrinity families.)withheld largest scholarship charities are using paycheck for state taxes. income tax donations to enrich themselves. INSIDE TODAY’S TRIBUNE This section Take 2 ALTERED VISION: Twelve years ago, Trent No. I prefer to let the AZ Dept. of Revenue keep all my state income tax and Franks envisioned a statewide system to Today’s quick take, A2 Sports, AA2 Local news, A3-18 Entertainment, AA9 allow the government to decide how it is spent. enable poor kids to go to private schools. Bulletin Board, A7 Get Out, AA11 Most of the charities that formed as a Blotter, A18 Nerdvana, AA11 ure Date result went in a different direction. Nation & World, A20 Movies, AA14 ______Parent/Guardian Signat ______Obituaries, A24 Celebrities, AA16 Opinion, A25-26 Puzzles & Advice, AA15 The Vent, A26 Sudoku, AA15 LIVE CHAT: Join reporters Ryan Gabrielson and Michelle Reese for a live Q&A on our Web site at 4 p.m. Classifi ed, A27-35 Weather, AA16 EVTRIB.COM THURSDAY: A Freedom Communications Get an early look at the third installment of Rigged Privilege. Newspaper © 2009 ALSO ONLINE: Databases that show how many donations each school tuition organization has received, An edition of the East Valley Tribune the scholarships they have given, and enrollment fi gures by school. Vol. 1, No. 110 A4 • WEDNESDAY, AUGUST 5, 2009 • MESA TRIBUNE EastValleyTribune.com RIGGED PRIVILEGE A Tribune investigation into Arizona’s Private Schools Tax Credit Program

Schools teach parents how to skirt law

By RYAN GABRIELSON AND MICHELLE REESE ties that violate federal tax code. “What’s wrong with this picture? TRIBUNE Donors cannot, for instance, Shame on you schools for raising — “make money” by donating their tuition beyond what would be normal ethsemane Lutheran School did not appeal to income tax dollars for a Gethse- mane Lutheran student. if the tax credit weren’t available.”

its faithful’s sense of charity when asking for The school supported that CHAMBRIA HENDERSON G contention by stating donors DIRECTOR OF THE ARIZONA money to fund student scholarships. could claim a contribution as a SCHOLARSHIP FUND Rather, the Tempe Christian elementary and middle deduction on their federal taxes, school appealed to their bank accounts. which is false if earmarked to benefi t specifi c students. The “You make money!” Gethsemane’s Web site shouted in Internal Revenue Service does Private school tuition credits In 1997, Arizona lawmakers created a way for taxpayers to take a portion of bold letters. not consider such donations to be charity, and therefore deduct- what they owe the state and redirect it to school tuition organizations, which ible. dole it out to private schools and students. The program has grown since then, More than 300 private schools nizations have begun to criticize Wendell Robson, Gethse- with organizations collecting about $350 million in donations in 12 years. across Arizona receive money the schools they partner with to mane’s principal, did not re- Donation amounts (in millions) from the state’s Private School raise income tax donations and spond to repeated requests for 50 Tuition Tax Credits program, distribute scholarships. comment. which takes income tax dollars, “What’s wrong with this Gethsemane works with the 40 otherwise destined for state cof- picture?” said ChamBria Hen- Arizona Christian School Tuition fers, to pay for private educa- derson, director of the Arizona Organization, the state’s largest 30 tion. Scholarship Fund. “Shame on STO, to provide its families with 20 A Tribune investigation of the you schools for raising tuition be- tax credit scholarships. tax credits found these subsidies yond what would be normal if the Steve Yarbrough, ACSTO’s 10 have largely failed to increase tax credit weren’t available.” executive director, said he was 0 access to private schools for low- However, many of the largest not aware of the statements on 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 and middle-income students and private school scholarship chari- Gethsemane’s Web site when the for minorities in particular. ties — particularly the Arizona Tribune asked about the school’s 16 33 36 43 43 51 53 53 56 55 55 Instead, schools that receive Scholarship Fund — have aided claims last month. Number of school tuition organizations, by year the most tax credit scholarships and abetted the price hikes. “With as many schools as we Number of donations (in thousands) dramatically increased their tu- Henderson argues that work with, more than 120, I’m ition. Several campuses doubled schools alone are responsible for not even sure that I’ve seen the 80 the price. their tuition rates and how they Web sites for all of them by any 70 And a small handful even use tax credit money. means,” Yarbrough said. “We do 60 mandate that parents make a Arizona’s general fund gets try to make sure they are giving tax credit donation to the private shorted $55 million a year accurate information.” 50 school as part of their children’s through tax credits to pay stu- He added that Gethsemane’s 40 tuition, violating state and fed- dent tuition. choice of words was regrettable. eral law. That amount has swelled in “I’m going to suggest clearly 30 At dozens of private schools, recent years, up from $42 mil- and strongly to them that they 20 enrollment materials include lion in 2005, records from the not make that sort of claim,” Yar- step-by-step instructions on how Arizona Department of Revenue brough said. 10 parents can work the tax credit show. The “tax credit” page on 0 system to get a majority, or all, of Lawmakers twice increased Gethsemane’s site is now blank, 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 their children’s tuition paid for at how much households can do- save for a link to ACSTO. no personal cost. nate for tuition credits this de- A court case challenges The maximum The maximum The maximum NO QUID PRO QUO the constitutionality of donation for donation for donation for The most ambitious adminis- cade. The price of private educa- the tax credit based on married filing married filing married filing trators publish multipage guides tion has grown accordingly. Summit School of Ahwatu- separation of church and joint returns joint returns joint returns on the subject. In their efforts to help par- kee’s handbook for parents on tu- state. It is determined to increases to increases to increases to Private education costs have ents recruit income tax donors, ition tax credits is 14 pages long. be constitutional. $625 from $500. $825 from $625. $1,000 from $825. risen so sharply that even ex- private schools sometimes make — SOURCE: Arizona Department of Revenue Jayson Peters/TRIBUNE ecutives at school tuition orga- dubious claims or suggest activi- CONTINUED ON A5 EastValleyTribune.com MESA TRIBUNE • WEDNESDAY, AUGUST 5, 2009 • A5

“All families at Summit pledged to make a contribution to the ASF Specific School Fund with Summit School of Ahwatukee designated as the recipient on their enrollment form.”

SUMMIT SCHOOL OF AHWATUKEE HANDBOOK ON PRIVATE SCHOOL TAX CREDITS THOMAS BOGGAN, TRIBUNE

FROM PAGE A4 and inappropriate. said he met the quota by calling “The list could include: income students, many Arizona — “That’s actually very poorly other Summit parents to remind friends, family, co-workers, peo- private schools increased tuition Its explanation of how to do- worded,” Andrew said. them to make their tax credit do- ple with whom you do business, each time the tax credit program nate to the Arizona Scholar- About half of Summit’s fami- nation for Summit. neighbors, fellow churchgoers, expanded. ship Fund, its STO of choice, is lies made tax credit contribu- “I hope I’m not being hypocrit- people at your gym or yoga stu- In 2005, the Goldwater Insti- more extensive than those avail- tions to benefit the school itself, ical,” Bosch said of his thoughts dio, members of your profession- tute, a Phoenix think tank that able from the charity itself. The many of them believing it was a at the time. al association, and much more,” advocates for limited govern- handbook contains five theoreti- condition of enrollment, he ac- The Bosches gave money out a flyer from the Tucson Waldorf ment, reported that the private cal families, each with different knowledged. of their own pocket to Summit’s School states. elementary schools charged financial circumstances, and Summit has never expelled capital fund for buildings. Gilbert Christian Schools $3,688 a year on average; high details how they take a private students because their family did Henderson, the Arizona uses its monthly newsletters to schools were more expensive, at school tax credit. not make the tax credit donation, Scholarship Fund’s director, said remind parents to “pound the $6,696. In the “frequently asked ques- Andrew said. “That was not our the Summit mandate was, at pavement” in search of potential Then in 2006, state lawmak- tions” section, the first query is intent, or the spirit of what we best, problematic. Regardless, donors. ers increased the amount that basic. were trying to do, and we never for years the scholarship charity Community Montessori, a taxpayers can contribute each Why should parents donate enforced it that way,” Andrew accepted such donations on be- private kindergarten in Phoenix, year to school tuition organiza- their income tax dollars specifi- said. half of Summit and other private has parents of all its students tions from $825 for married cou- cally to Summit, the school, rath- Parents could get away with schools. join in. ples, to $1,000. er than to an individual student? not making the donation, said “I know of probably only two “I tell parents, if you want to For the school year just be- The school’s answer is even Paul Bosch, whose son just fin- or three schools that have this be a part of the school and feel ginning, tuition at the private simpler: because they have to. ished eighth grade at Summit, requirement,” Henderson said, like you’re not paying for it, you schools that receive the most tax “All families at Summit but the school didn’t make the “and I shake every time I think have to go out there and contrib- credit scholarships is anecdotal- pledged to make a contribution tax credit sound optional. about it.” ute and get out there and recruit ly as much as 30 percent higher to the ASF Specific School Fund Bosch said he and his wife for family members and friends,” than the average prices Goldwa- with Summit School of Ahwatu- years have used their $1,000 pri- ‘POUND THE PAVEMENT’ said Janet Wheeler, Community ter found four years ago. kee designated as the recipient vate school tax credit to help pay Private schools have turned Montessori’s director. Notre Dame Preparatory in on their enrollment form,” the tuition for a friend’s child at a dif- parents into fundraisers. The instruction and encour- Scottsdale — which collected handbook states. ferent school, leaving them with- Instructions for where and agement is ostensibly to help $620,868 in tax credits last year The condition violates the out income tax dollars to spare how to seek out income tax do- families with children in the — charges $10,400 in yearly tu- state’s tax credit law because it for Summit. nors are included on Web pages, schools. ition, not counting application requires the donation as part of However, he helped Summit discussed at school meetings and But in many cases, it’s the and registration fees. In 2004, the parents’ tuition payment. lean on other families for dona- handed out with copies of the schools that benefit most from families paid $7,235 per student. The law forbids parents from tions. student code of conduct. Admin- the fundraising efforts. At the Phoenix Hebrew Acad- taking a tax credit that benefits Summit requires parents to istrators emphasize that parents Much like universities raise emy, kindergarten tuition was their own children. volunteer a certain number of think big, and consider asking their prices each time Congress $9,600 last year; enrolling in What’s more, the mandatory hours to help the school. Bosch anyone they know. adds more financial aid for low- grades first through eighth cost tax credit also breaks federal tax $10,500. A kindergarten educa- code, which prohibits quid-pro- tion at the academy cost $7,800 quo donations to nonprofit chari- Top-dollar school tuition organizations, 2008 in 2005; the elementary grades ties like STOs, in which donors Amount Scholarships Scholarships were $7,500. receive something of personal Individual income tax credit organization received given amount Brophy College Preparatory value in exchange for their con- Arizona Christian School Tuition Organization $11,554,910 5,584 $10,964,557 in Phoenix has almost doubled tribution. Catholic Tuition Organization of the Diocese of Phoenix $9,783,082 5,663 $10,380,028 tuition since 2001, now charg- In July, Summit altered its en- Arizona Scholarship Fund $6,160,160 2,824 $5,369,173 ing more than $12,000. The elite rollment documents for the up- Institute for Better Education $4,615,726 2,290 $3,784,240 campus collects the second-most coming school year, requesting Catholic Tuition Organization of the Diocese of Tucson $4,371,392 2,854 $4,467,544 tax credit scholarship money, donations instead of mandating. Jewish Tuition Organization (formerly Jewish Country $1.5 million last year. The word change came after Tri- Day School Scholarship Fund) $1,770,732 389 $2,172,669 bune inquiries about the school’s Arizona School Choice Trust $1,507,633 1,202 $2,527,279 THEIR OWN STO use of tax credits. Arizona Tuition Organization $1,350,950 726 $1,234,638 “Cover everything in prayer!” Bill Andrew, chairman of Arizona Private Education Scholarship Fund $1,272,939 480 $779,616 the Flagstaff Community Chris- Summit’s board of directors, said Tuition Organization for Private Schools $1,270,106 778 $1,154,783 tian School advises parents in a the statements in the private NOTE: Money received in late 2008 would not be given out in scholarships the same calendar year; tip sheet about securing private school’s handbook and applica- STOs can use up to 10 percent of donations for administrative costs — tion materials were inaccurate SOURCE: Arizona Department of Revenue TRIBUNE CONTINUED ON A6 A6 • WEDNESDAY, AUGUST 5, 2009 • MESA TRIBUNE EastValleyTribune.com RIGGED PRIVILEGE A Tribune investigation into Arizona’s Private Schools Tax Credit Program Charity survived indictments to help poor

By RYAN GABRIELSON — still existed. TRIBUNE “I don’t think anyone “I was on the outside looking — in on that one,” she said. The Maricopa County School- thought there would be The Schoolhouse Founda- house Foundation is the most the success in collecting tion’s federal tax fi ling from 2005 unusual of all Arizona’s 55 school the amount of money lists Dowling as president of the SUBMITTED tuition organizations. that was collected.” charity’s board of directors. ON CAMPUS: Northwest Christian School in Glendale is the The charity’s story began as a On the charity’s fi rst two an- largest recipient of tax credit scholarships. cautionary tale of how effortless- MARC FRAZIER nual reports to the state Reve- ly Arizona’s Private School Tu- SCHOOLHOUSE FOUNDATION’S nue Department, Bridger totaled ition Tax Credits can be abused. EXECUTIVE DIRECTOR the hundreds of thousands of ON EARLY TAX CREDIT FROM PAGE A5 families do not limit themselves Ultimately, though, the foun- dollars it received in tax credit — CONTRIBUTIONS to one scholarship from one dation has grown into one of just — donations. Under the section for school tax credit donations. charity. seven STOs that give scholar- amount spent on scholarships, “Let God orchestrate this for Northwest students, who ships exclusively to underprivi- The charity was attached to Bridger wrote zeros. you and He will make sure this go from kindergarten through leged students. the county schools then, operat- “I’d call him up and say, ‘Re- information gets into the right high school, received the largest Cash poured into the char- ing in the same offi ce. In 2006, ally?’” said Georganna Meyer, hands.” amount in tax credits last year, ity from the very fi rst year it the county schools’ Web site the Revenue Department’s chief However, few private schools $1.6 million, with scholarship opened. asked for “tuition” tax credits to economist, who oversees the tax leave such matters to chance, or money arriving from several In 2005, the charity received help its public school students. credit program. to higher powers. different STOs. $230,000 through tax credit do- The site made no mention that The Schoolhouse Foundation The state tax credit law About 200 students at North- nations to provide scholarships the state subsidy is intended for paid out its fi rst scholarship in stipulates that STOs must be west applied for and received for students at private campus- private schools. 2007, state records show. But willing to provide scholarships tuition money from multiple es. The Pappas schools were on even that created problems, as to more than one school. The scholarship charities, said Tom There was a problem, though. the brink of closure, with a mul- Bridger wrote a check to Xavier provision is intended to discour- Hartzler, the school’s adminis- The Schoolhouse Foundation timillion-dollar defi cit and Dowl- College Preparatory in Phoenix age private schools from setting trative services director. is a nonprofi t dedicated to serv- ing fi ghting criminal charges. for a student’s entire four-year up scholarship charities just If the schools do not oper- ing homeless children. She pleaded guilty tuition, roughly $40,000. for themselves, said Georganna ate their own STO, administra- Further, at its incep- in July 2008 to a single “He just didn’t know what he Meyer, chief economist at the tors typically form partnerships tion, the charity was an misdemeanor charge of was doing,” Frazier said of Bridg- Arizona Department of Rev- with one or more of the large offshoot of the Thomas violating state employ- er. enue. scholarship charities, such as J. Pappas Schools — ment law; all the original In July, Frazier allowed a Regardless, many campuses the Arizona Christian School public schools where the charges were eventually Tribune reporter to inspect the have done just that. Tuition Organization and the Valley’s most underprivi- dropped. charity’s internal fi nancial re- The state law stipulates that Arizona Scholarship Fund. leged attended class. Frazier was the coun- cords, detailing which students STOs must be willing to give These partnerships help pri- Sandra Dowling, Sandra Dowling ty schools’ administra- it is giving scholarships to and scholarships to other schools, vate schools ensure income tax then the fi ve-term Mari- tive services director which schools they attend. The not that they actually do so. dollars that parents lined up for copa County superintendent of under Dowling. He pleaded guilty balance sheets show that, since “I encourage them, if just their children’s tuition arrive at schools, ran the campuses and last year to a misdemeanor, mis- early 2008, the scholarship foun- for the sake of appearances, do the campus when the bill is due. the charity. use of public money, for deposit- dation has paid $506,000 in tu- more than one school,” Meyer Such partnerships come in The Schoolhouse Foundation ing a check, allegedly made out ition for students at a number of said. handy when problems surface. told the Internal Revenue Ser- to the county school district, into Catholic high schools, including The Dynamite Montessori Like when an STO uses tax vice it would provide homeless the charity’s bank account. Brophy and Xavier college pre- Foundation is an offshoot of a credit money donated for a stu- students with scholarships to The county school district paratories. Cave Creek private school, Dy- dent at one private school to, attend private high schools, ac- was so closely tied to the char- Dayna Hirschberg, a School- namite Montessori. instead, pay tuition for another cording to federal tax records. ity that the two were almost in- house Foundation administrator, The scholarship charity gave student at a different campus. The IRS then approved the distinguishable from each other, said the charity limits its schol- its namesake $23,154 in scholar- Carrie Slade, Summit Schoolhouse Foundation as a federal tax records show, with arships to families whose income ships in 2008. It also provided School’s business manager, said tax-exempt charity in July 2006. money moving between the two is less than $40,000 a year. three other Montessori schools the Arizona Scholarship Fund Four months later, a grand jury regularly. Last year, after the Pappas just more than $3,000, the state has made that mistake on occa- indicted Dowling on 25 counts of The charges, allegations, and schools closed, a public charter Revenue Department records sion. Slade said she helps par- misusing public money, bid rig- lawsuits swirling around the school, Children First Academy show. ents work with the scholarship ging and depositing taxpayer Pappas schools, Dowling and the of Phoenix, opened in their place. The Arizona Tuition Orga- charity to track the donations cash into the new nonprofi t. foundation were confusing even The charity began making gifts nization (AZTO), another tax by check number to prove that Roughly a half-million dollars to a judge assigned to the case. to the academy. Jerry Lewis, the credit charity, distributed $1.2 the Summit student has been in tax credit donations sat in the “I still don’t understand the academy’s assistant superinten- million in scholarships from in- shorted. Schoolhouse Foundation’s bank criminal nature of what Mr. Fra- dent, said the Schoolhouse Foun- come tax donations in 2008. Of “And ASF says, ‘Oh my gosh, account, for years unspent and zier’s charged with,” Maricopa dation has purchased buses and that, $1 million paid tuition for you’re right, we’re so sorry,’” she unaccounted for. There was no County Superior Court Judge computers and paid the school students at Northwest Chris- said. “And they move the funds consequence for failing to spend Edward Burke said after accept- nurse’s salary. tian School in Glendale. over right away. But we have to the state income tax money on ing Frazier’s guilty plea, a tran- And now, four years and much Matt Davidson, Northwest’s keep on top of them.” private school tuition. script of court records show. turmoil later, it also appears to superintendent, is on the AZTO — “I don’t think anyone thought Dowling hired David Bridger be one of the best examples of board of directors. CONTACT WRITER: there would be the success in as the Schoolhouse Foundation’s how Arizona’s private school tax Like the state’s other large (480) 898-5630 collecting the amount of money fi rst executive director in 2005, credit law can benefi t the under- private schools, Northwest’s or [email protected] that was collected,” said Marc and he held the job through privileged. Frazier, now the Schoolhouse 2007. “It’s taken us this long,” Fra- Foundation’s executive director. When contacted by the Tri- zier said, “to fi nally get it all And Pappas’ students, denied bune, Bridger largely refused to organized and to have enough EVTRIB.COM basic skills by transient lives, comment about the charity’s use students apply and everything were not destined for private of tax credits. else to be able to use this money LIVE CHAT TODAY: Join reporters for schools. “I just think the focus should properly, in what it was intended a live Q&A on our Web site at 4 p.m. The Schoolhouse Foundation be on the children, homeless chil- to be used for.” did not give a single scholarship dren,” he said. — THURSDAY: Get an early look at the in its fi rst two years, Arizona Dowling said she had little CONTACT WRITER: third installment of Rigged Privilege. Department of Revenue records knowledge of how the foundation (480) 898-5630 show. operated and was not aware it or [email protected] Dillard’s Mesa to close its WHERE LOCAL NEWS IS FIRST Fiesta Mall location in Mesa as a department store • A3 Winner of the Pulitzer Prize for Local Reporting Friday, August 7, 2009 EastValleyTribune.com >> Online every day. In print Wednesday, Friday and Sunday for FREE! INSIDE TODAY’S RIGGED PRIVILEGE A Tribune investigation into Arizona’s Private Schools Tax Credit Program

Rep. Steve Yarbrough, left, speaks with Rep. Tom Boone at the Arizona Capitol. Yarbrough is co-founder and executive director of the state’s most prolifi c tax credit charity. The nonprofi t has given generously to Yarbrough, too.

ENTERTAINMENT Streep delivers delicious performance in ‘Julie & Julia,’ AA7

SPORTS ASU football begins FRINGE BENEFITS practice, AA5 CHARITIES GIVE EXECUTIVES EXTRA CASH, CARS, REAL ESTATE

Today’s Tomorrow’s SUNDAY, AUG. 2 WEDNESDAY, AUG. 5 IN TODAY’S PAPER, A4-7 weather: weather: THE FIX: HOW-TO GUIDE: PERKS: High 103, High 103, The tuition tax credits Many private Executives at two of Arizona’s largest law was supposed to revolutionize schools teach parents how to skirt scholarship charities are using income tax donations Low 72 Low 74 PAGE A4 Sunny Sunny school choice for disadvantaged the law by lining up donors for to enrich themselves. children. Instead it fostered a rigged their children. ALTERED VISION: INSIDE TODAY’S TRIBUNE system that keeps private education Twelve years ago, Trent Franks PLOT TWIST: This section Take 2 a privilege for the already privileged. The tale of Maricopa envisioned a statewide system to enable poor kids to Today’s quick take, A2 Sports, AA2 County Schoolhouse Foundation go to private schools. Most of the charities that formed Local news, A3-24 Entertainment, AA7 NO OVERSIGHT: The state has no begins with criminal indictments as a result went in a different direction. PAGE A6 Bulletin Board, A12 Get Out, AA8 way of ensuring that $55 million but ends as an example of tuition Spiritual Life, A15-16 Music, AA8 a year in tax credits really goes tax credits’ promise for serving the COMMENTS FROM READERS: What people are saying Obituaries, A28 Movies, AA7, 10-11 PAGE A8 The Blotter, A18 Celebrities, AA15 toward scholarships for private underprivileged. about our investigative series. Nation & World, A26-28 Puzzles & Advice, AA14 school students as the law intended. Opinion, A29-30 At Home, AA12-13 Classifi ed, A31 Weather, AA15 READ THE ENTIRE SERIES OUR RESEARCH: Records, data, EVTRIB.COM A Freedom Communications Newspaper © 2009 parents show how the system works LIVE CHAT: Join reporters for a live Q&A on our Web site today at 1 p.m. An edition of the East Valley Tribune outside the courtroom and the ALSO ONLINE: Databases that show how many donations each school tuition organization Vol. 1, No. 111 statehouse fl oor. has received, the scholarships they have given, and enrollment fi gures by school. A4 • FRIDAY, AUGUST 7, 2009 • MESA TRIBUNE EastValleyTribune.com RIGGED PRIVILEGE A Tribune investigation into Arizona’s Private Schools Tax Credit Program “A number of people in the system are not altruistic. That breaks my heart. That discourages me. It’s like power and money corrupt all things.” DEBRA PEARSON • AN EARLY TAX CREDIT SUPPORTER AND FORMER STO BOARD MEMBER Some charities most generous to executives

By RYAN GABRIELSON AND MICHELLE REESE ings. TRIBUNE — Maret Vessella, the state bar’s interim chief counsel, said law- xecutives at two of Arizona’s largest private yers are not permitted to do any school scholarship charities have used state in- legal work or charge fees unless E they have an active license. Prac- come tax dollars to give themselves luxury cars, ticing law without that can bring censure and, in extreme cases, expensive real estate, jobs for relatives and friends, and disbarment. extra cash hidden in the nonprofi ts’ balance sheets. “An inactive license — it’s the same thing as if it’s suspended, The benefi ts are potentially illegal under federal tax in terms of you cannot practice code and put the charities at risk of crippling fi nes and law,” Vessella said. Yarbrough said he consid- even closure, according to tax experts interviewed by the ers the legal fees part of his sal- Tribune. THOMAS BOGGAN, TRIBUNE ary, not for him to represent the scholarship charity as an attor- The newspaper’s investiga- Steve Yarbrough, its co-founder “We think what we do is clearly ney. “Any legal work I’m doing tion of Arizona’s Private School and executive director, ACSTO appropriate under the law.” at this point is basically just my Tuition Tax Credits found the is the state’s most prolifi c tax business knowledge, my experi- $55 million-a-year program has credit charity. REP. STEVE YARBROUGH ence in that regard,” he said. CO-FOUNDER AND EXECUTIVE DIRECTOR largely failed to expand access And the nonprofi t has given OF ACSTO Nonprofi t charities fi le their to private education for low- and generously to Yarbrough, too. own tax returns — the “Form middle-income families, as prom- Income tax donations to 990” — even though they don’t ised. And a pair of the scholar- ACSTO have paid hundreds of pay taxes. In exchange for free- ship charities, called school tu- thousands of dollars to private dom from income taxes, charities ition organizations, which run businesses owned by Yarbrough, are supposed to accurately detail the program, have enriched their a Republican lawmaker from transactions do not illegally prof- In 1997, when tuition tax cred- their revenues and expenses, executives and board members. Chandler, and other members of it them at the charities’ expense. its became state statute, Yar- what they pay top executives and “A number of people in the the charity’s board of directors, “We think what we do is clear- brough largely closed his family whom they do business with. system are not altruistic,” said federal tax records show. ly appropriate under the law,” law practice. He focused his time ACSTO does not list all of Debra Pearson, an early tax To help him travel around, the Yarbrough said. and energy on building the Ari- Yarbrough’s compensation in the credit supporter and former STO scholarship charity has bought Tax experts that the Tribune zona Christian School Tuition same part of the fi ling, as the IRS board member. “That breaks my two Infi niti G35 luxury sedans. interviewed disagreed. Organization. requires. heart. That discourages me. It’s At the third-largest STO, Ari- “The parties here are really It was, at fi rst, a surprisingly Therefore, it is impossible to like power and money corrupt all zona Scholarship Fund, Cham- pushing on the edge, in my judg- diffi cult undertaking, Yarbrough know how much the charity pays things.” Bria Henderson oversees a more ment, by doing this kind of thing,” said, considering tax credits es- its executive director. The state has 55 STOs. But than $5 million-a-year operation said Bruce R. Hopkins, a tax at- sentially offer schools and par- IRS auditors have caught nu- two of them — the Arizona Chris- providing tuition money to cam- torney who runs the Nonprofi t ents free money. merous charities attempting to tian School Tuition Organization puses of all shapes and sizes. Law Center in Kansas City, Mo. “To try to get a church to do a hide executive pay by tucking and the Arizona Scholarship Henderson conceived the idea When charity executives take mailing for an outside organiza- cash and perks in different item- Fund — dominate the industry, of tax credits to pay for private something from their organiza- tion is not an easy thing to do,” ized expenses. together collecting almost a third school tuition some two decades tion (like a large salary or equip- he said. Yarbrough’s additional pay of all tax credit donations. ago and then lobbied for it at the ment) without giving back some- ACSTO is by far the most fi - is not documented in ACSTO’s The personal profi ts these Arizona Legislature. thing of equal or greater value, nancially successful of the state’s tax fi lings; he does disclose that major STOs have provided ex- Like Yarbrough, she has used that is a violation of federal tax STOs. he provides the charity legal ser- ecutives appear to violate federal the scholarship charity she oper- code called “private inurement,” Yarbrough, working full time vices. tax code, according to several ates to furnish herself more than said John D. Colombo, a Univer- as a charity executive and state ACSTO’s fi ling for 2007 also nonprofi t attorneys and tax ex- fringe benefi ts. sity of Illinois law professor spe- lawmaker, deactivated his license states that David Harowitz, one perts the Tribune interviewed. Nepotism is ASF’s primary cializing in tax-exempt organiza- with the State Bar of Arizona in of the charity’s former board Only auditors with the Internal hiring policy. Henderson employs tions. 2004. The administrative change members and founders, volun- Revenue Service can determine her three children and seven oth- Executives who receive illegal saved him a few hundred dollars teered his time as its primary if scholarship charities’ pay- er relatives and friends, accord- benefi ts face major fi nes of up to a year in fees and made it easier attorney. ments and purchases are “pri- ing to federal tax records. 200 percent of the benefi ts’ val- to turn away former clients who However, Yarbrough acknowl- vate inurement,” and therefore ASF gifted Henderson money ue. In the most egregious cases, wanted his representation again, edged that Harowitz also re- unlawful. for a down payment to buy offi ce the IRS can strip charities of he said. ceives income from what ACSTO Several of the deals ACSTO space. The charity now rents that their tax-exempt status, a death ACSTO is the only party that classifi es as legal fees. and ASF struck with their direc- space from Henderson at a price sentence for nonprofi ts. receives his legal insights now. That line item typically totals tors are questionable, putting well above the going rate for that “If you are guilty of private Yarbrough does not supply almost $60,000 a year, federal their status as tax-exempt chari- class of commercial property. inurement,” Colombo said, “bad his legal knowledge pro bono, tax records show. ties at risk. The Tribune provided its things happen to you.” though. Any misstatement on ACS- ACSTO pays out more than fi ndings to Yarbrough and Hen- The scholarship charity pays TO’s fi lings to the IRS are acci- $10 million a year in scholar- derson last month. The execu- PRIVATE GAIN him an extra $12,000 each year as dental, Yarbrough said. ships for thousands of students’ tives confi rmed the newspaper Steve Yarbrough turned pri- a retainer, on top of his $96,000 Harowitz did not respond to private religious educations. Un- had accurate details about their vate school scholarships into a salary, which ACSTO counts as — der the stewardship of state Rep. benefi ts, though both argue the second career. “legal fees” in its federal tax fi l- CONTINUED ON A5 EastValleyTribune.com MESA TRIBUNE • FRIDAY, AUGUST 7, 2009 • A5

— ChamBria LLC — to buy the ASF’s tax filings to the IRS do office space with a $360,000 not disclose that the charity is li- mortgage from Wells Fargo. able for its executive’s personal There was a problem, though. debt. Henderson couldn’t afford to buy Federal tax code allows execu- the 1,800-square-foot spread that tives to lease office space to the she picked to be the charity’s new charities they run so long as the headquarters, near Baseline and price is fair, said Hopkins, the Higley roads. Kansas City nonprofit attorney. She took a second mortgage “But the IRS would be all on her new condo to gather cash over this,” Hopkins said of ASF. for a down payment. But she “I mean, they would be looking remained $27,000 short of the at this to test it to see if the loan roughly $90,000 that Wells Far- terms are reasonable, the rental go required, ASF’s federal tax fil- agreement is reasonable. There ings show. are hundreds of rulings where In September 2006, ASF’s organizations are denied (tax) board of directors agreed to lend exemption or lose exemption be- that amount to Henderson. cause they’re doing this kind of The $27,000 turned out to be thing.” a gift to the chief executive, not a loan. ALL IN THE FAMILY Henderson charges ASF Most nonprofits are mom- $4,300 a month in rent. That in- and-pop shops. cludes the amount she owes ASF A charity’s founder often THOMAS BOGGAN, TRIBUNE for the $27,000, tax and rental re- works simultaneously as ex- cords show. ecutive director, board member, “The board just felt it wasn’t a wise financial decision Put simply, ASF uses income fundraiser and receptionist. to have something (valued at) close to half a million dollars tax donations to make the pay- Many hire relatives and friends ments on the loan it gave Hen- to do work for the nonprofit, of- as an asset of the organization to be just handed away derson. She pays nothing. ten getting services at discounted to somebody else (if ASF dissolved).” The scholarship charity pays prices, which leaves more money CHAMBRIA HENDERSON Henderson $28 per square foot to spend on charity work. ON WHY SHE BOUGHT OFFICE SPACE FOR ARIZONA SCHOLARSHIP FUND, in rent for its office space, a fair But not all such arrangements BECOMING LANDLORD AS WELL AS EXECUTIVE DIRECTOR market rate, she argues. are for public service. OF ARIZONA’S THIRD-LARGEST STO However, CB Richard Ellis, Henderson hires her family one of Arizona’s largest real es- and friends, and those of ASF’s FROM PAGE A4 ami tax law professor. tion through a tax credit, rather tate firms, asks no more than $26 board members, to help run the — “Very, very bad situation,” Hill than vouchers. The scholarship per square foot for its most high- operation. requests for comment. said. “The IRS has been busy re- charity allowed her to test the end commercial space in Mesa. The executive’s oldest daugh- Yarbrough and Harowitz are voking the (tax) exempt status of idea in the real world. Katherine Hauge, a CB spokes- ter, Kanani, oversees finances generating more income from a any number of entities that have “I opened up Arizona Schol- woman, said most of its proper- and technology for the charity, different line item. exactly that fact pattern.” arship Fund to be a lab for this ties rent for far less. according to federal tax filings. The scholarship charity pays Yarbrough’s flashiest income experiment,” Henderson said of Units in ASF’s office com- Her son, Enoch, works in fund- HY Processing, a private data- is also listed at the back of the private school tax credits. plex were advertised for $16 per raising along with his sister- entry corporation, more than charity’s tax filings. Henderson also made it her square foot on a Craigslist.org ad in-law, Khara Taylor. ASF pays $400,000 a year. Those bills take In 2002 and 2007, ACSTO own private business and ran in May. Henderson’s other daughter, Le- up a majority of ACSTO’s admin- bought automobiles, the first ASF from home for eight years. Debra Pearson, a former state ticia, for clerical work. istrative spending. for $36,000 and the second for As the homeowners associa- lawmaker, served on ASF’s board Such hires are legal so long as The “H” stands for Harowitz, $44,000. Specifically, the schol- tion moved to evict the charity in at that time and said she urged the charity can show they were who owns the company with “Y,” arship charity purchased Infiniti fall 2006, Henderson decided to Henderson against borrowing made by an independent board, better known as Yarbrough, Ari- G35 sedans that Yarbrough said buy office space herself, becom- money from the charity. the compensation is a fair mar- zona Corporation Commission he uses as his personal vehicle. ing ASF’s landlord and executive Henderson ignored the ad- ket value and the employee is records show. ACSTO does not count the se- director. vice. equipped to do the job, said Jeff Yarbrough said the company dans in the executive’s compen- Asked why ASF did not pur- “She would say, ‘I have the Hurwit, a Massachusetts attor- employs up to a dozen people sation; Yarbrough said he counts chase its own office space, Hen- votes on the board to do it,’” ney specializing in nonprofit law. during its busiest times of year to it as such in his own federal in- derson provided multiple, con- Pearson said. Most of the relatives and process scholarship applications, come tax filings. flicting explanations. Henderson alone chooses who friends are paid to increase ASF’s entering family income informa- “For the privilege of driving First, Henderson said ASF’s serves on ASF’s board. tax credit donations, regardless tion into databases and finding that car, I get to pay taxes,” he board of directors, which in- ASF helped Henderson buy of whether they are qualified. excerpts from letters. said. cludes herself and her oldest the office space in more ways “We had some people that The ACSTO director would daughter, thought it was a bad than one; she also had the char- were obviously close to us, not provide HY’s internal finan- OFFICE SPACE idea for a charity to own property. ity cosign the loan, making the friends and family, that said they cial records to the Tribune. The Arizona Scholarship Fund If ASF ever dissolved, she added, nonprofit liable for Henderson’s had some background in fund- Yarbrough said he and Harow- outgrew ChamBria Henderson’s the charity’s executives could not personal debt. raising and would like to attempt itz do not take any salary from two-bedroom condo even before keep the buildings themselves. Henderson provided mort- to fundraise on behalf of the or- the firm, though it does gener- it made the Mesa residence its “The board just felt it wasn’t gage records to the Tribune that ganization,” Henderson said. ate a profit for them. He would headquarters in 2004. a wise financial decision to have show ChamBria LLC is required Several of these hires failed not disclose how much profit HY Regardless, the scholarship something (valued at) close to to repay the entire loan amount to raise enough in donations to provides; ACSTO is the corpora- charity only searched out a place half a million dollars as an asset within five years. cover the cost of their salary, tion’s only client. of its own in 2006 and only by of the organization,” Henderson Henderson will owe Wells Far- Henderson said, and she fired Yarbrough insists that HY force. said, “to be just handed away to go roughly $300,000 when the them. However, the charity’s tax saves the scholarship charity Henderson’s homeowners as- somebody else.” mortgage comes due in Septem- filings do not show any reduction money on administrative expens- sociation noticed ASF employ- Later, Henderson said ASF ber 2011, the newspaper calcu- in employees with personal ties es but did not release any evi- ees’ cars parked all over the had no way to make such a pur- lated using ASF’s tax filings and to executives. dence to support his assertion. narrow subdivision streets and chase because her bank, Wells Henderson’s records. The execu- Pearson, the former ASF “It is, obviously in my opinion, threatened legal action. Fargo, does not provide mortgag- tive acknowledged she intends board member, said she cut ties an arrangement with consider- The STO was already collect- es to nonprofit charities. for the charity to pay that bill. with the charity when Hender- able benefit to ACSTO,” Yar- ing and distributing millions of That is false. In June, Henderson told the son hired Pearson’s son, then in brough said in a written response dollars. Henderson launched the In fact, the bank regularly Tribune that ASF’s lease prom- high school, to do complicated to the Tribune’s questions. charity in 1998 after lawmakers lends money to nonprofits and ises the charity can occupy its fundraising work. The firm’s employees work established the program that al- even seeks them out as custom- headquarters free of charge once These employment practices from the same building as AC- lows taxpayers to take money ers, said Ferris Morrison, a Wells the mortgage is repaid. pose legal problems for the schol- STO and, in everything except they owe the state general fund Fargo spokeswoman. “We do lots The lease does not include any arship charity, Hurwit said. “This name, are employees of the char- as income taxes and give it to of business with” charities. such condition. When questioned is just rife with improper action, ity. STOs for student tuition. about the disparity, Henderson it sounds like.” HY’s business arrangement She had devised the idea of BALLOON PAYMENT admitted that she has not com- — puts the charity in peril, said giving taxpayers control over Henderson formed her own mitted to provide ASF free rent CONTACT WRITER: (480) 898-5630 Frances Hill, a University of Mi- how their tax dollars fund educa- private, for-profit corporation at any point. or [email protected] A6 • FRIDAY, AUGUST 7, 2009 • MESA TRIBUNE EastValleyTribune.com RIGGED PRIVILEGE A Tribune investigation into Arizona’s Private Schools Tax Credit Program Tax credit sponsor’s vision unrealized

By RYAN GABRIELSON ciated with supporting STOs and and MICHELLE REESE the scholarship programs, and TRIBUNE that is that it’s for everybody,” — said Michael Kelly, the school Trent Franks wanted to take choice trust’s executive director. money from the rich and give it “We don’t subscribe to that.” to the poor. A Tribune investigation of the Private education has long tax credits found these subsidies been the providence of the af- have largely failed to increase fl uent. Low- and middle-income access to private schools for low- families often can’t afford the and middle-income students and cost. for minorities in particular. Franks, now a U.S. congress- The system is rife with abuse man from Arizona, thought he by scholarship charities, private had the answer. It was a scholar- schools and parents, the newspa- ship charity in Phoenix called the per found. Arizona School Choice Trust, And it has continued to grow which in the early 1990s was in size and cost, with individual raising about $100,000 a year to taxpayers shifting $55 million send low-income students to pri- in income tax dollars from the vate schools of parents’ choice. Arizona general fund to private “It was such a noble effort, schools last year, Arizona De- and I could see that it was mak- partment of Revenue records ing a difference,” said Franks, show. Since 1997, the total cost who was on the trust’s board at has been $350 million. TRIBUNE FILE the time. The tax credit program re- TROUBLE AT THE CAPITOL: With revenue shortfalls for the current fi scal year projected to be The trust continues to do that, mains untouched even as the near $4 billion, programs around the state have faced budget cuts, including education. Education now with more than $1 million in state suffers through the worst supporters have protested at the Capitol several times in the last few months. donations through Arizona’s Pri- economic conditions in its his- vate School Tuition Tax Credits. tory. fer from public schools. “It was such a noble effort, The subsidy takes income tax Private school tax credits are Such programs help the dollars, otherwise destined for helping the state during this cri- school choice movement, and and I could see that it was state coffers, to pay for private sis, the system’s supporters ar- STOs should use them to expand making a difference.” education. gue, because the program takes educational options for all Ari- TRENT FRANKS Franks said the trust inspired students out of public classrooms zona families, said Clint Bolick, a NOW U.S. CONGRESSMAN WHO the way he wrote the tax credit and off the taxpayer rolls. constitutional law expert for the WAS ON THE BOARD OF ARIZONA legislation, which forbids par- However, enrollment data Goldwater Institute. SCHOOL CHOICE TRUST AND AUTHORED ents from making a donation to shows that private schools have “We should fi ght for universal TAX CREDIT LEGISLATION pay their own children’s tuition. grown little — 6,800 students school choice, but each (STO) re- School tuition organizations, — in the 12 years since the tax ally does have to search its soul STOs for short, which run the tax credits became state law. Pub- to determine its own mission,” States with education tax credits credit system, would follow the lic schools, by comparison, have said Bolick, who is also board trust’s lead in providing scholar- swelled by 280,000. chairman of the Arizona School Arizona was the first state to Minn. ships to the underprivileged, the In 2006, state lawmakers cre- Choice Trust. pass a dollar-for-dollar tax credit congressman believed. ated a second private school tax With the advent of tuition tax for private school tuition using Penn. R.I. A few of the scholarship chari- credit, to allow corporations to credits, Franks said he expected nonprofit organizations that Iowa nonprofit organizations that Ill. ties have done so. donate their income tax dollars a crop of new private schools to collect and disperse the funds. But not most, and the largest to STOs. open. These campuses would STOs have traveled far astray of That tax credit is far different specifi cally serve underprivi- the trust’s model, accepting in- from the one for individual tax- leged students, who otherwise go Ariz. come tax donations earmarked payers. The law limits how much to public schools. Ga. to pay tuition for specifi c stu- income tax money can go to pri- In many cases, low-income dents, no matter how much par- vate schools in a single year and students do not have a ready sup- Fla. ents earn. requires that scholarships go to ply of relatives and family friends “There are some myths asso- low-income students who trans- to make tax credit donations on their behalf. See an interactive map with information about each state’s 2006 income tax credits, individual vs. corporate The state law that Franks au- programs at www.eastvalleytribune.com/page/taxcredits thored does not address whether SOURCE: National Conference for State Legislators and state Web sites TRIBUNE INDIVIDUAL CORPORATE donors can name the student to Total: $157.24 million* Total: $72.459 million receive tuition money, though it does forbid parents from donat- earmarked for specifi c students Those kinds of standards, Enterprise zone Pollution Agricultural water control device ing to pay their own child’s tu- or specifi c private schools, said Franks said, are supposed to Research and development conservation Coal consumed School site donation ition. ChamBria Henderson, Arizona pervade the private school tax Property tax Clean elections Clean elections Franks said the state statute Scholarship Fund’s executive di- credit system. Private school didn’t need to address that, be- rector. The trust is one of just sev- Family tax credit tuition cause STOs must be tax-exempt In comparison, the Arizona en STOs in the state that base School site organizations donation nonprofi t charities. Federal tax School Choice Trust prohibits scholarships primarily on fi nan- Private code doesn’t allow these charities earmarks for specifi c students. cial need. Working school tuition poor organizations Enterprise to accept donations earmarked Donors can name which school “This is the rich giving will- contribution Increased zone to benefi t one individual. to help, but the scholarship re- ingly to a fund that gives to kids excise taxes paid Research and However, that practice is com- cipients must be from low-in- — most of the time, 95 percent of Public school development extracurricular monplace at the largest STOs. come families. the time — that they don’t even activity Most years, about 97 percent “We do not allow, permit or know that live in south Phoenix,” of tax credit donations to the support recommendations,” Kel- he said. SOURCE: Arizona Department of Revenue Arizona Scholarship Fund, the ly said. “If someone recommends — * Does not include the $124.93 million claimed as taxes paid to other states and countries TRIBUNE state’s third-largest STO, are a child, we do not support that.” CONTACT WRITER: (480) 898-5630 EastValleyTribune.com MESA TRIBUNE • FRIDAY, AUGUST 7, 2009 • A7 RIGGED PRIVILEGE A Tribune investigation into Arizona’s Private Schools Tax Credit Program What readers are saying about Rigged Privilege

Reader comments run uned- rent and car repairs might keep the poor. Face it, we’re a disap- have just as much right to apply HOW-TO GUIDE ited. me from ‘benefi ting’ from this.” pearing minority.” this towards a private school Many private schools teach par- WATCHINGMESA OFTENCONFUSED as anybody else. It may be that ents how to skirt the law by lining THE FIX — — they just aren’t aware of the up donors for their children. (Ap- The tuition tax credits law was “This has been and always was a “One of my children has a benefi ts and how it might apply peared in print Aug. 5.) supposed to revolutionize school fl awed program. There was nev- disability, and I send him to a to them. This is a good system — choice for disadvantaged children. er enough money in it to allow private school that specializes in that works, don’t stop it.” “Someone posted the other day Instead it fostered a rigged system poorer people to attend private educating special needs chil- PLCUNNING that this is just like the Alt fuel that keeps private education a schools, but there was enough dren. I have used the tax credit — scam a few years back and we privilege for the already privileged. money to offset expenses for by donating to Arizona Scholar- “I don’t understand why my tax all know what zip codes areas (Appeared in print Aug. 2.) rich people. This is not muck- ship Fund to support his school, dollars are expected to subsidize bought the most them seems to — racking, for once the Tribune but not to directly reduce a child’s religious education. be the same crowd here lol the “Tom Horne says these types gets it right. All this was was a his tuition. What this article Its a fractured and messed up loud mouth republicians who of private institutions make bill to supplement people who describes is fi rst and foremost system that has been sucking scream if a welfare mom gets the public schools step up and could already afford it and as I a bad law, and also alleged tax money out of our public educa- help with daycare sick world we perform better. However, a recall, this was the main objec- fraud. I hope hundreds of people tion system for a decade; so that live in.” public school gets all students tion when it was started.” forward this article to the IRS, children can get taught that the LFTISBEST rich, middle class, and poor. IRONS1 and demand enforcement. Then earth is 6,000 years old and the — This forces a proper balance — vote in a new legislature next cavemen were riding dinosaurs “Our family uses the tax credit of diversifi ed learners. These “What the STOs are doing is year, and change the law.” before a massive fl ood came.” to pay SOME of our childs private schools get public fund- enabling tax fraud, and it is WYTCAR LURXST tuition. we are not rich, my hus- ing as well. But, they decide illegal. One may not take a tax — — band works at Wal-mart :)The who enrolls or who knows about deduction from a contribution “Raise tuition - this how those “Articles like this make me feel private school is the best fi t for there program. They do not to benefi t a specifi c individual, who have keep those who have like maybe I still live in a free our child. We are so grateful play by the same rules but our no matter what your political not out - the reason behind pri- country, that has a real, indepen- for the program and I know our eductional leader supports them party may be. Otherwise I could vate schools.. elite score again dent press.” child would suffer if this pro- 100%.” cut a deal with my neighbor and - and abuse system - all i want to KENJ12 gram goes away :(” EASTMESAMAN establish a scholarship to pay hear now is that the federal govt. — MOMMA28 — for his kid’s tuition at the univer- and state govt. have received “Why don’t the poor take ad- sity, while he does the and are adjusting fi lings - send- vantage of it? Lets see, $10,000 same for mine. Oh yeah, that’s ing bills w/interest and penalty EVTRIB.COM in tuition while a person makes right! This is exactly what’s for those who have abused the $19,000. I can give $1000 in Au- happening, huh? ” system - case closed.” SPEAK UP: Join the conversation at http:// gust for tuition which I will get STORMAZ100 PROFWOMAN www.eastvalleytribune.com/page/taxcredits back only part in May because I — — don’t pay high taxes. I don’t have “It’s white collar crime like this “The system doesn’t limit itself LIVE CHAT TODAY: Join reporters for a rich relatives, so I am still $9K that hurts the middle-class just to non-minorities. Minority live Q&A on our Web site at 1 p.m. short. Maybe the cost of food, as much as welfare fraud from people pay state tax also. They Attention CD Owners 3.25%APY 12- MONTH TERM GUARANTEED Rate changes to 3.0% on August 15th

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