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Private school tax credits rife with abuse
Ryan Gabrielson, Michelle Reese, Tribune
July 28, 2009 - 4:08PM , updated: August 1, 2009 - 10:05AM

Only God and the health of loved ones rank higher with Beth and Doug Fitch than an elite education 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-million 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 Tuition Tax Credits program covers the cost of private education, often for children whose parents could afford to pay it themselves - while allowing affluent families to reduce the amount of income tax they pay into the state's general fund.

To date, Arizona's main bank account has lost $350 million to private schools. The price tag is growing as the state grapples with the most serious financial crisis in its history, and people who depend on the general fund - public school children, the disabled, the poor and the sick - face severe cuts in services.

Under the program, taxpayers give money to nonprofit charities called school tuition organizations, or STOs for short. STOs give scholarships to children for private school tuition, and the state provides donors a dollar-for-dollar tax credit in exchange for their contribution.

The tax credit law, signed by Gov. Fife Symington in 1997, is touted as a tool to make private education more accessible to families who could not otherwise afford it.

Instead, it has fostered a rigged system that keeps private education a privilege for the already privileged....

The Tribune investigation found:

* An untold number of STOs, schools and parents are using the tax credits in ways that violate federal tax laws governing charitable donations.

* Nearly two-thirds of all STOs failed to spend 90 percent of their donations on scholarships - as required by state law - since 2003, the year the STOs began filing annual reports with the state Department of Revenue.

* Executives at two of the largest STOs have used tax credit donations to enrich themselves, buying luxury cars, real estate and funding their own outside for-profit businesses.

* A majority of tax credit donations are earmarked to give scholarships to students already enrolled in private schools, no matter how much money their parents earn. Just seven of the state's 55 STOs use financial need as the primary factor in deciding who gets tuition money.

* Even as they took in millions of dollars in scholarships, the state's private schools hiked tuition dramatically, pushing the cost of private education further from the grasp of middle- and low-income families.

* Tax credits have failed to increase minority students' access to Arizona's private schools. Students at the schools receiving the most scholarship money remained overwhelmingly white at a time when the state's Hispanic population boomed.