Judging Arizona’s Tuition Tax Credit Program

By Amy H Laff

On November 3rd, while most of us were preoccupied with midterm election results, the Supreme Court heard oral arguments on the constitutionality of an Arizona tax credit program. Arizona taxpayers may claim a credit of up to $500 (couples filing jointly claim up to $1,000) for contributions to charitable organizations called Student Tuition Organizations (STOs), which in turn award scholarships to students who wish to attend private schools, secular or religious.

Arizona legislators set up the program in 1997 to encourage Arizona residents to increase educational opportunities for poor and middle class families. There are now more than 50 STOs, which have raised $400 million collectively and provide some 27,000 scholarships annually.

At the outset, the justices have to decide whether the plaintiffs, four Arizona taxpayers, have the legal right, or “standing,” to bring the case. Normally, taxpayers can’t sue the government over how their tax dollars are spent. In a 1968 case, Flast v. Cohen, the Court carved lowered the bar for Establishment Clause claims, but even under Flast, taxpayers must establish a “nexus” between their status as taxpayers and the type of legislative enactment attacked.

Since Arizona’s tuition assistance program doesn’t direct taxpayer money to religious institutions, there is no such nexus. In contrast to taxpayer-funded voucher systems, Arizona’s program merely allows residents to claim tax credits for their own donations to private schools. Think of it this way: If  I have my car washed on “ladies day,”  the carwash isn’t interested in how I spend the three dollars I would have spent on washing my car were it not for the discount.

Incidentally, U.S. Acting Solicitor General Neal Katyal argued along with Arizona’s counsel (yes, you read that correctly) that the taxpayers have suffered no injury.

If the Court holds that the plaintiffs don’t have standing, future challenges to state programs based on church-state claims will be reduced substantially. As University of Pennsylvania law professor David Skeep pointed out in the Wall Street Journal last week, “[t]hat would leave more of the decisions about programs that benefit religious schools to state and local lawmakers—and fewer of them to unelected judges.”

If, on the other hand, the Court finds the taxpayers sufficiently harmed to bring the case, it will make a decision on the merits.

The plaintiffs, represented by various organizations including the American Civil Liberties Union, argued that since most of the funds donated under the tuition tax credit program go to religious schools, and  some of the STOs have religious missions, the program violates the Establishment Clause.

Last year the left-leaning Ninth Circuit Court of Appeals agreed and held the program unconstitutional. The high court should, and probably will, reverse the appeals court decision.

Donations to STOs are made from private funds. Since the scholarship money is never under government control, the Establishment Clause doesn’t apply.

Further, the state doesn’t decide which schools benefit from the scholarship awards. Under the tax credit program, anyone can form an STO. The fact that the bulk of the STO money benefits religious schools reflects donor preference and parental demand, not state action.

The appeals court concluded – wrongly – that by allowing residents to claim the tuition tax credit, Arizona pressures parents into choosing religious private schools. Nothing could be further from the truth. Arizona families have myriad non-religious school options, including almost 600 tuition-free charter schools.

The tuition tax credit increases taxpayer freedom as well as parental choice. If the Court upholds the credit, other states are likely to emulate Arizona’s program. So what’s new?

The case was consolidated from two lawsuits, Arizona Christian School Tuition Organization v. Winn and Garriott v. Winn. A decision is expected before the current term ends in June.