Operationalization of Arizona K--12 Schools Tuition Tax Credit legislation

In 1997 Arizona passed legislation that provided tuition assistance to families who send their children to private schools. A.R.S. § 43-1089 known as the Arizona K–12 Schools Tuition Tax Credit Law allowed taxpayers to direct up to {dollar}500 of their tax liability to a School Tuition Organization (STO). The STOs in turn awarded the money to private school students in the form of grants and scholarships. The purpose of the study was to describe how the passage of the Arizona K–12 tuition tax credit legislation (A.R.S. § 43-1089) has been operationalized and the law's impact on the State's budget.; All 39 currently known STOs were surveyed in this study to determine how they operated and were held accountable and the founder of the first STO was interviewed to determine how the first STO was formed. Advanced copies of the survey were mailed to the executive directors of the STOs and the survey was conducted by phone interview. Additional sources of data included State offices of revenue and education, and the Joint Legislative Budget Committee.; Findings of the study showed that within the first three years of operation the number of STOs grew from 15 the first year to 39 at the time of this study. A total of more than {dollar}30 million was collected by these STOs during the first three years of the enactment of the law. STOs operated efficiently with more than the minimum required 90% of donor contributions going directly to students in the form of scholarships and grants. The number of students receiving scholarship awards rose from 326 the first year to 19,290 in 2000. STOs voluntarily submitted reports of their activities to the Arizona Department of Revenue and filed mandatory financial reports to the IRS in order to maintain their nonprofit status.; Conclusions and recommendations include the need for the State to continue monitoring the budgetary impact of this tax credit. The State should require annual reporting rather than making it optional. The potential donor base is quite large and could be more fully developed by STO's. An authoritative ruling should be made by the Internal Revenue Service as to whether or not donors may recommend an individual or a school as a recipient of funds.