Seldom do two articles scream out in unison from page one of
the Arizona Republic:
Tax-Credit Program Helping
Rich AZ Schools Get Richer / Wealthiest Schools Get Most Donations
By Craig Harris
The
Republic | azcentral.com
Wed
Dec 18, 2013 6:54 AM
There are certain inescapable
signs that the holidays are upon us: lights on saguaros, bell-ringers at the
malls and Arizona public schools soliciting last-minute tax-credit donations to
fund after-school sports, the arts and field trips for children.
Schools deliver their annual
solicitation to parents and education supporters via school websites,
direct e-mails and even in movie-theater ads at this time of year, with the
Dec. 31 deadline looming to donate for credit on this year’s state income
taxes.
In Gilbert, Mayor John Lewis
threw his support behind the program by declaring December tax-credit awareness
month for the town’s schools.
The individual state income-tax
credit for the support of extracurricular activities or character-education
programs is now in its 16th year. It allows donors to take a dollar-for-dollar
state income-tax credit of up to $200 for individuals or $400 for married
couples in return for a donation.
The write-offs are taken by
donors as subtractions from their income-tax liability on their annual state
income-tax returns. It cost the state general fund $51.7 million in uncollected
revenue last year, when a quarter-million donors gave a record amount in gifts
to 1,380 district schools and 403 charter schools, Arizona Department of Revenue
records show. District schools accounted for 86 percent of the total.
Since its inception, the program
has cost Arizona’s general fund nearly a half-billion dollars, and tax-credit
donations are expected to increase this year, as they have for all but one of
the past 15 years, according to Darlene Teller, a Revenue Department senior
economist who monitors the program.
School officials say tax-credit
funds help them stay financially afloat by paying for non-classroom expenses
and allowing them to focus general-fund spending in the classroom.
Yet The Arizona Republic has
found that the program typically benefits only affluent schools, where parents
generally can afford to make donations to cover fees for their children to play
sports, get involved in the arts or go on field trips — and pick up the tax
credit that lowers their state income-tax burden.
The Republic also found limited oversight of how the
money is solicited and spent, despite stringent rules on how such funds are
supposed to be used.
The Republic analyzed an Arizona Department of Revenue
database and 2011 and 2012 financial reports in which public district and
charter schools reported how much in tax-credit donations was raised and how it
was spent. The Legislature required public schools to start filing those
reports after calendar-year 2011 in an effort to gain more
accountability.
The Republic compared that information with data it
collected on schools that administer a federal free- or reduced-price lunch
program.
Analysis showed that schools with
a high percentage of free- or reduced-price lunch students raised little to no
tax-credit money to benefit children, while 102 public schools in mostly
affluent areas and 14 charter schools raised more than $100,000 each last year,
with 24 of those raising at least a quarter-million dollars apiece.
The biggest recipient was
Tucson’s Catalina Foothills High School, which raised nearly $1 million in 2012
and spent $460,101 on athletics and $375,286 on its band program. The school
has less than 9 percent of its students on the meal program, among the lowest
in the state.
The Republic found that schools where less than 25
percent of students qualified for the federal free- or reduced-price lunch
program received more than double the number of donations of schools where more
than half of children were on the meal subsidy.
“The rich schools can do it, but
they don’t need an extra boost. Yet they are the ones raking in the most money.
It’s doubly unfair,” said Gene Glass, an Emeritus Regents’ Professor at Arizona
State University who specializes in education policy.
Glass said the tax-credit
program doesn’t help children in low-income schools because their parents
typically do not earn enough money to pay state income taxes, so it is not
beneficial for them to make a tax-credit donation.
Qualifying for the tax credit
varies depending on a taxpayer’s Arizona adjusted gross income and the number
of exemptions and deductions taken.
At a minimum, an individual
taxpayer would have to make at least $14,767 a year to qualify for a $200
credit, while a married couple filing jointly would have to make at least
$29,527 to qualify for a $400 credit, according to the Arizona Department of
Revenue.
Problems noted
The program, which gives a tax write off for
Arizonans, cost the state general fund $51.7 million last year.
The number of donors and donations
to Arizona’s public schools extracurricular tax-credit program has, for the
most part, steadily increased since its inception in 1998. The program, which
gives a tax write off for Arizonans, cost the state general fund $51.7 million
last year.
The Republic’s examination of the Income Tax Credit for the
Support of Extracurricular Activities or Character Education Programs also
found:
District and charter schools
successful in raising tax-credit funds have saved for a rainy day, with 75
public schools and seven charter schools having at least $25,000 unspent at the
end of 2012.
Eight public schools had
balances in excess of $100,000.
Teller, the Revenue Department
senior economist, said there is no law prohibiting schools from saving
tax-credit funds. But she said that was not the program’s intent, and she has
encouraged schools to use donations around the time they are given.
A few schools have used
tax-credit funds for questionable expenses, such as paying for a prom, a
teachers luncheon or Advanced Placement exam fees that can give students
college credit.
Teller said that, after
reviewing the schools’ reports, she informed those schools that the payments
were outside the scope of the law. She also warned them that if they did not
repay the tax-credit accounts with other funds and use tax-credit money
appropriately, donors who made contributions may not qualify for the income-tax
credit.
There is limited disclosure on
how the funds are used. Beginning with the 2011 calendar year, public and
charter schools for the first time were required by law to report annually how
they spent tax-credit funds, but the law did not require a detailed breakdown.
There are few consequences for
not supplying details, unless Teller spots a mistake or a public complaint is
filed. Most schools used only generic reporting categories showing expenditures
in areas such as sports, orchestra or drama.
Some schools misreported the
amount of money raised and spent.
The Paradise Valley Unified
School District, for example, revised 2012 reports for five of its high schools
after The Republic raised questions as to whether those school had large
tax-credit surpluses.
The district found it had made
accounting errors with all those schools, which then reported much smaller
surpluses.
After The Republic
raised questions about a potential large surplus at Prescott High School, the
Prescott Unified School District also said it underreported by about a
quarter-million dollars the amount the school spent in tax-credit funds last
year.
The majority of public and
charter schools follow a state law that says tax-credit donations can be used
only for extracurricular activities that require enrolled students to pay a fee
to participate, or for character- education programs.
Some large school districts such
as Mesa Public Schools have strict guidelines on how its schools can use
tax-credit donations.
Tax-credit funds in general
cannot be used for senior trips or events that are recreational, amusement or
tourist activities. And the money cannot be put to regular classroom use such
as buying computers, according to Teller.
Although Teller has caught some
questionable expenditures, she said it is difficult for her to monitor every
Arizona public school.
She said that she expects
schools to follow the law but that school employees who handle the accounts at
individual schools often are not familiar enough with the law to know what is
disallowed.
Troubling letter
One charter school that may be
out of compliance is Eduprize Schools in Gilbert, which informed at least one
donor that “one hundred percent” of tax-credit donations made last year would
be used to “advance our technology for our students and staff.”
The Republic obtained from a parent a January 2013
letter from Lynn Robershotte, the school’s founder, that said classrooms were
being outfitted with iPads, improved computing and projectors to enhance
instruction with tax-credit donations.
Cindy Nelson, an Eduprize
parent, said the school will not allow parents to make tax-credit donations for
extracurricular activities. Instead, she said, the school has them pay fees to
a parent-teacher group to fund those activities.
“The whole issue has been
bothering me for years,” Nelson said. “It’s just not right. We have to pay the
money, and they (Eduprize) won’t allow us to count it as a tax credit.”
When informed of the letter by The
Republic, Teller said using tax-credit funds for non-extracurricular
activities is illegal and doing so would jeopardize an individual’s tax-credit
donation and require the taxpayer to amend his or her income taxes and possibly
repay the state.
“There’s a certain amount of
responsibility for the taxpayer to know if it (donation) is going towards an
extracurricular activity,” Teller said.
Robershotte said the letter was
“poorly written” and should have stated that 100 percent of “non-designated
tax-credit funds” had gone to technology. She added that parents are allowed to
use tax-credit funds for extracurricular sports, music or other programs.
Robershotte added that Eduprize
charter schools in Gilbert and Queen Creek were informed this month that the
Attorney General’s Office was investigating how tax-credit funds had been used
for the past three years. A spokeswoman for the Attorney General’s Office said
Tuesday that it was responding to a complaint made to the office.
Some public-school officials
told The Republic that the tax-credit law is murky and that a qualified
extracurricular activity or a character-education program can be open to
interpretation.
Buckeye Union High School, for example,
used $2,600 in tax-credit funds on a deposit for a prom venue after the junior
class ran short of money. However, Teller and the Arizona Attorney General’s
Office told the school that was not a “qualified extracurricular activity for
use of the tax credit.”
“We figured it was a
school-sponsored activity,” said Jeff Simmons, associate superintendent of
operations for the Buckeye Union High School District. “We didn’t understand
why that’s not an extracurricular activity. They took a very narrow view.”
Simmons said the district used
developer donations — money local builders give to the district — to replenish
the tax-credit account.
The use of tax-credit funds is
also under scrutiny at Chandler Hamilton High School. The Attorney General’s
Office in July launched a potential criminal investigation into whether
thousands of dollars in tax-credit funds dedicated to Hamilton’s marching band
were improperly used. The investigation began after a parent complained to the
state Department of Education.
Hamilton Principal Fred DePrez
said he has been perplexed by the investigation, but he said the school is
fully cooperating with the state. The Attorney General’s Office said the
investigation is ongoing.
DePrez added that Hamilton
traditionally has been successful in raising tax-credit donations because of
the school’s success in sports and other extracurricular programs. “People want
to keep that going, and that is why they support us,” DePrez said.
Hamilton in 2012 raised $455,009
in tax-credit funds and had an unspent balance of $292,031 — the most in
Arizona.
“It sounds like a lot of money,
but most accounts have $1,000 or $2,000 in them,” said DePrez, whose school has
90 different tax-credit accounts.
“For us, the rule of thumb is to
try and spend the money on the kids that it was raised for,” he said. “That
doesn’t always happen, but that’s what we try to do.”
Program’s goals
The Arizona Legislature created
the public- school tax-credit program in 1997 as a way to get a private-school
tax credit approved, said Mark Anderson, the bill’s sponsor.
Anderson, who spent 14 years in
the Legislature, said public-school teachers and school boards vigorously
opposed his bill for a private-school tax credit, saying it would undermine
public education. Anderson, now a West Mesa justice of the peace, said that
adding a tax-credit program for public schools “helped us get enough votes to
get it passed.”
Anderson’s House Bill 2074
squeaked through with the minimum required 16 votes in the Senate and 31 votes
in the House. Then-Gov. Fife Symington signed it into law.
Symington said that the
tax-credit programs have become a “fixture” in Arizona and that most residents
are happy with them.
“I think they have been good
public policy because, by and large, they have increased parental choice,”
Symington said. “That doesn’t mean mistakes haven’t been made. But you don’t
throw the baby out with the bathwater.”
Anderson agreed that most public
schools today are pleased with the program, and he has no problem with schools
saving money for a dedicated purpose.
But Anderson said some
controversy remains with the private tax-credit program.
He said his intent was for the
private tax-credit program to help low-income students get scholarships. But it
has been used by middle- and upper-income families to help their children
attend private schools.
Both tax-credit programs have
been costly to the state general fund, according to state Revenue Department
records.
The private-school tax-credit
program and enhancements made to it have taken a collective $682.2 million from
the general fund in the form of taxpayer write-offs since its inception, while
the public-school program has taken nearly $497 million since 1998.
Who raises the most
Typically, high schools raise
the most tax-credit donations because they have larger enrollment than
elementary or middle schools, and they offer more extracurricular activities
that qualify for tax-credit funds.
The public school that has
raised the most tax-credit money in Arizona is Tucson’s Catalina Foothills High
School, which raised $918,827 in 2012 — more than the combined total of the
bottom 445 public schools that each raised $5,050 or less. Fifty-eight of those
schools raised nothing.
Catalina Foothills recorded
4,296 donations — also tops in the state — and the school spent $956,382 in
2012, thanks to starting the year with a surplus in its tax-credit account.
“We need the tax-credit dollars
so that the district can spend the money on math and English and media arts,”
said Jody Brase, Catalina Foothills’ assistant principal and athletic director.
Brase said her school is
fortunate to have “pro-education” parents and community members who are
well-aware of the tax-credit program. She added that most students come from
two-parent homes and that those adults have professional jobs, with two of the
major employers being the University of Arizona and Raytheon Missile Systems.
Brase said tax-credit donations
are used to pay for after-school transportation, equipment, uniforms or
coaching stipends.
The next biggest fundraiser was
Prescott High School, which raised $788,288 last year and spent $695,676. Its
largest expense was sports.
Renee Raskin, Prescott Unified
School District’s chief financial officer, said students are charged $130 each
to play sports. Over a year, that and other extracurricular high- school fees
add up to a lot of tax-credit contributions.
Among charter schools, the
biggest tax-credit recipient was Horizon Community Learning Center in Phoenix,
which raised $271,998 last year.
“The key is having outstanding
parental support and getting people outside our community to donate to our
program,” said Bill Thompson, finance director for Horizon Community Learning
Center. “Our parents and staff understand it’s a grass-roots basis.”
Republic data
reporter Matt Dempsey contributed to this article. And here’s a more-recent email to residents
from Phoenix Mayor Greg Stanton: “If you have school-aged kids, give to their school. And if you
don’t, I encourage you lend a hand to a school in need.”
Wealth Gap Hindering Economy,
Experts Say
By Christopher S. Rugaber
Associated Press
WASHINGTON — The growing gap between the richest
Americans and everyone else isn’t bad just for individuals.
It’s hurting the U.S.
economy.
So says a majority of more than three dozen economists surveyed last
week. Their concerns tap into a debate that has intensified as middle-class pay
has stagnated while wealthier households have thrived.
A key source of the
economists’ concern: Higher pay and outsize stock-market gains are flowing
mainly to affluent Americans. Yet these households spend less of their money
than do low- and middle- income consumers who make up most of the population
but whose pay is barely
rising.
“What you want is a broader spending base,”
said Scott Brown, chief economist at Raymond James, a financial-advisory
firm.
Spending by wealthier Americans, given the weight of their dollars, does
help drive the economy. But analysts say the economy would be better able to
sustain growth if the riches were more evenly dispersed. For one thing, a
plunge in stock prices typically leads wealthier Americans to cut sharply back
on their spending.
“The broader the improvement, the more likely it will be
sustained,” said Michael Niemira, chief economist at the International Council
of Shopping Centers.
A wide gap in pay limits the ability of poorer and
middle-income Americans to improve living standards, the economists say. About
80 percent of stock-market wealth is held by the richest 10 percent of Americans.
That means the stock market’s outsize gains this year have mostly benefited the
already affluent.
Those trends have fueled an escalating political debate. In
a speech this month, President Barack Obama called income inequality “the
defining challenge of our time.”
Obama also called for an increase in the
federal minimum wage, now $7.25. Republican leaders in the House oppose an
increase, arguing that it would slow hiring.
Income inequality has steadily
worsened in recent decades, according to government data and academic studies.
The most recent census figures show the average income for the wealthiest 5
percent of U.S. households, adjusted for inflation, has surged 17percent in the
past 20 years. By contrast, average income for the middle 20 percent of
households has risen less than 5 percent.
The AP survey collected the views of
private, corporate and academic economists on a range of issues. Among the topics
were what policy decisions, if any, the Federal Reserve might announce after it
ends a policy meeting today.
Three-quarters of the economists surveyed don’t
think the Fed is ready to announce a pullback in its economic stimulus.
Speculation has been rising that the Fed will soon scale back its $85 billion
in monthly bond purchases because of the economy’s steady gains. The bond purchases
have been intended to keep longterm loan rates low to induce people to borrow
and spend.
Most of the economists don’t think the economy needs the Fed’s
help. Just over half say they believe growth could reach a healthy 3percent
annual pace even without the Fed’s bond buying.
As Janet Yellen prepares to
succeed Ben Bernanke as Fed chief early next year, most of the economists
expect the Fed to become more “dovish” — that is, more focused on fighting
unemployment than on worrying about higher inflation that might result from the
Fed’s actions.
The Senate could confirm Yellen as soon as this week.
The
economists are also confident that the economic recovery, which officially
began 4½ years ago, has yet to reach its high point.
And nearly all think the
next recession is at least three years away; half think it’s at least five
years away. The economists forecast that growth will average 2.9 percent in
2014. That would be the healthiest annual pace since 2005.
But economists
appear to be increasingly concerned about the effects of inequality on
growth. Brown, the Raymond James economist, says analysts used to debate whether
inequality was worsening. Now, he says, “there’s not much denial of that ...
and you’re starting to see some research saying, ‘Yes,
it does slow the economy.’ ”
Cuba is definitely not the US definition of democracy. Then again, no one elected the queen of
England nor the British prime minister.
They have their own definition of democratic elections for their
leaders.
