Arizona Expands Education Tax Credit to Increase Opportunities for Low-Income Families

Issue Brief

A budget deal reached last week between Arizona lawmakers and Democratic Governor Janet Napolitano will increase the number of scholarships available for children of low-income families to transfer out of underperforming or unsafe public schools.

The new plan allows Arizona businesses to donate up to $5,000 per year for scholarships – money that can be written off dollar-for-dollar from state taxes. Only students who will use the scholarships to transfer from public to private schools are eligible.

Arizona is already one of the nation’s leaders in providing educational freedom. Its original scholarship tax credit law for families and individual taxpayers, passed in 1997, provided over $24 million in tuition assistance for nearly 20,000 students in 2003. The state also features the country’s most active charter school movement.

To ensure that they reach the neediest students, the new plan requires that 70 percent of scholarships be given to families whose income is within 185 percent of the government limit for free or reduced-price lunches. The deal also includes provisions to ensure accountability and student safety at participating private schools.

Governor Napolitano, who had long opposed giving parents greater educational freedom, had vetoed earlier attempts by the legislature to do so. Under this latest agreement, legislators scaled back a broader school choice proposal that included full-fledged vouchers, and also agreed to provide increased funding for all-day kindergarten, one of the governor’s legislative priorities.

“The Corporate Tax Credit will help move Arizona ahead even farther in the area of student choice,” said state Representative Laura Knaperek (R-Mesa), who had authored a voucher plan earlier in the session. “Tax credits have passed the judicial test, which means an additional 10,000 students will immediately be affected by this legislation. This is a real victory for all Arizona students and their families.”

The new tax credit is expected to provide $5 million in scholarships, which will be capped at $4,200 for students in grades K-9, and $5,500 for high school students.

As many Arizona communities struggle to meet the needs of rapidly-growing school-age populations, tuition tax credits are also viewed as a tool to help them avoid steep public school construction costs.

In Pennsylvania, which has offered business tax credits for scholarships since 2001, over 20,000 students have received scholarships averaging $1,300 per child. Florida also has a corporate scholarship tax credit plan in place, in addition to vouchers for students in chronically underperforming public schools.