3rd Annual Grading Arizona s Scholarship Organizations

3rd Annual Grading Arizona s Scholarship Organizations Private School Tuition Organizations Changing Lives One Student at a Time August 2014 THIS REPORT COMMISSIONED BY THE HISPANIC COUNCIL FOR REFORM AND EDUCATIONAL OPTIONS (HCREO) WWW.HCREO.COM

Grading Arizona s Scholarship Organizations Private School Tuition Organizations Changing Lives One Student at a Time In 4 th grade, Carlos Ochoa decided to change his life. He watched his best friend walk across the stage at an awards ceremony to receive recognition for straight A s, and Carlos was jealous. He could be a good student, he thought, even though he was developing a reputation as a troublemaker. As he watched the school principal honor his friend, he decided there was more to life than petty theft and trespassing. Making the decision was the easy part. Following through on his promise to himself would be a challenge. His family had moved nearly every year of his young life, from Washington state, to Phoenix, and then to locations around the valley. The regular uprooting made it difficult to concentrate on schoolwork, but by 8 th grade, Carlos had pulled his grades up and a friendly teacher suggested he apply to a private school. At that time, his parents had to move once again. Despite the potential for another transition for Carlos, the Brophy Community Foundation, an Arizona school tuition organization (STO), provided financial aid for Carlos to attend Brophy College Preparatory and receive the education he worked so hard to qualify for. Today, Carlos receives one of the nearly 38,000 scholarships awarded through Arizona s tax credit scholarship law (see Figure 1). Individuals and corporations donate money to non-profit scholarship organizations that use the funds to award scholarships to K-12 students. Contributors receive a dollar-for-dollar credit on their taxes for their donations, up to certain limits. Since 1998, scholarship organizations have awarded nearly $600 million in scholarships to Arizona students. In this third annual report on Arizona s scholarship organizations, the Hispanic The way they challenge you academically is important. Council for Reform and Educational Options (HCREO) explains how these scholarships help thousands of students like Carlos students that would not be able to access a quality education without the help of a scholarship. Arizona law says that scholarship organizations must take into account a student s financial need when offering scholarships to students, and HCREO uses data from the Arizona Department of Revenue to rank scholarship organizations based on how well they meet this provision in the law. Earlier this year, Carlos won first place in the Arizona district speech and debate tournament. He will represent Brophy in June at the national competition. He is proud of his accomplishments and knows his scholarship to Brophy has given him excellent opportunities. The way they challenge you academically is important, Carlos said. The college preparatory mission was really important How to find a great education for your child in Arizona Over 1 million children attend public schools in Arizona, but there are many other ways parents can find a great school or educational experience for their child. In addition to tax credit scholarships, Arizona has the nation s only Empowerment Scholarship Accounts, parents can choose a public school on the other side of town through open enrollment, families have more than 600 charter schools to choose from, and more than 30,000 children in Arizona take classes online. The Hispanic Council for Reform and Educational Options (HCREO) holds community meetings all over the state to help parents understand their choices. Hundreds of Arizona families have found better schools for their children with HCREO s help. To contact HCREO, call (602) 316-9732 or visit www.hcreo.com. 2

to me. This fall, Carlos will become the first person from his family to attend college when he attends American University on a full scholarship. Arizona Mom Says Scholarships Make the Impossible Possible Carmen Rios never dreamed that she would be able to send her sons to the same private school that she attended growing up. Today, Carmen uses scholarships for her sons, Julian and Javier. Doctors diagnosed both boys on the autism spectrum when they were young, and Carmen thought her only option was to follow the process for students with special needs at a traditional school. She had attended a private school as a child, and while she wanted the same kind of education for her sons, she thought a traditional school was her only choice. When the school district wanted to place Julian and Javier in self-contained classrooms, Carmen disagreed with the decision. It seemed like it was going to be an uphill battle to get any kind of other setting for them, she says. When she suggested an aide to help her children during the school day, All sorts of obstacles and excuses were thrown my way. Without the scholarship, tuition would be impossible but the scholarships make the placement possible Carmen found a scholarship for her boys through the Arizona School Choice Trust. Today, Julian and Javier attend the same school Carmen attended, Santa Cruz Catholic School. The boys are doing great, Carmen says. Kids with autism seem like they don t want social interaction, but they do, and Julian is a testament to that. He has his friends and his close-knit group of buddies that he always gravitates towards and they understand him. Without the scholarship, Carmen says, tuition would be impossible but the scholarships make the placement possible. Since 2009, Arizona STOs have been able to use corporate contributions to award scholarships to students with special needs under Lexie s Law. Named for Lexie Weck, then a 7-year-old girl with multiple needs including autism, Lexie s Law helps children with unique challenges across the state. In 2013, six STOs awarded a total of 218 scholarships under Lexie s Law. Data and Methods To help parents and donors evaluate Arizona s STOs, we rated the scholarship organizations in five areas:: Percent of annual revenue awarded in the form of scholarships; Percent of scholarships awarded to students from low-income families; Percent of scholarships awarded to students from low-income and working-class families; Number of schools that a student using a scholarship can choose from based on an STO s rules; And whether or not an STO awards scholarships based on a family s need or the recommendations of other families or What Is a School Tuition Organization? An Arizona school tuition organization, or STO, is a charitable organization that provides private school scholarships to children in grades K-12. Individuals and businesses can donate funds to an STO and take a dollar-fordollar credit on their taxes for their contribution (the tax credits are capped at certain limits). In FY 2013, 62 STOs operated in Arizona. STOs award funds to families in order to help pay private school tuition for their children. STOs can use donations from individuals or married couples for any child seeking a scholarship, but Arizona law stipulates that organizations using individual donations to award scholarships must consider the financial need of applicants in making the awards. 1 Arizona law requires STOs to use corporate donations for children from low-income families, children with special needs, or children in Arizona s foster care system. All scholarships funded with corporate donations must go to students switching from a public school to a private school. To learn more, call (602) 316-9732, or visit www.hcreo.com. 3

contributors. Arizona law prohibits an STO from awarding a scholarship solely on the basis of a parent or donor recommendation. Unless otherwise noted, all data come from the Arizona Department of Revenue s Private School Tuition Organization Income Tax Credits in Arizona: A Summary of Activity FY 2013. Low Administrative Cost Arizona law requires that 90 percent of an STO s annual revenue be allocated for scholarships in the current year or set aside for future years. Because the scholarships can be paid over multiple years, not every STO will meet this provision annually. In FY 2013, STOs reported that they had reserved $20.5 million in revenue for scholarships in future years. The Arizona Department of Revenue explains that if an STO does not pay 90 percent of its revenue in scholarships every year, the STO is not in violation of the law. However, if an STO is regularly below the 90 percent mark from year to year, this is an indication that they are spending more on staff salaries and other administrative expenses than the law allows. This year s report is the first analysis using an average of the administrative cost figures from prior years. In this report, STOs are given a star if they awarded 90 percent or more of an average of their 2012 and 2013 individual contribution and corporate contribution revenue in scholarships. STOs received a (-) if they used less than 90 percent of an average of their 2012 and 2013 revenue on scholarships. Many of the STOs included in this table award scholarships using corporate contributions, and the STOs corporate scholarship awards are recorded alongside the rankings. Scholarships for Poor Students The Arizona Department of Revenue reports the percent of scholarships that each STO awards to students from families with income levels at or below 185 percent of the poverty line. Only donations from businesses or corporations are required to be awarded in scholarships for low-income children, but Arizona s individual tax credit scholarship law says that STOs must consider a student s financial need when awarding scholarships. Children living at or below 185 percent of the poverty line are eligible for the federal Free and Reduced Priced Lunch (FRL) program. 3 According to the Arizona Department of Education, 58 percent of Arizona students are eligible for the FRL program. 4 STOs were awarded a star if 58 percent or more of their scholarships were awarded to students living at 185 percent or below of the poverty line. STOs were given a (-) if less than 58 percent of their scholarships were used for children living at or below 185 percent of the poverty line. Scholarships for Poor and Working Class Students The Arizona Department of Revenue reports the percent of scholarships that STOs awarded to students living at 342.25 percent of the poverty line or below. In the table provided in this report, this column includes the percent of children living at or below 185 percent of the poverty line and the percent of students from families with incomes between 185 percent and 342.25 percent of the poverty line. This column s data indicate scholarships awarded to all children living below 342.25 percent of the poverty line. A family of four living in the same household where total income is 342.25 percent of the U.S. Census Bureau s poverty line would be earning $80,853 per year. 5 P L U S Individual Income Tax Credit Program In 2012, Arizona lawmakers expanded scholarships funded with individual donations. Individuals can now contribute approximately $1,000 and married couples can give $2,000. In both cases, STOs can use the first half of the donations according to their organizations award guidelines, but any donations over $500 for individuals (up to $1,000) and over $1,000 for married couples (up to $2,000) must be used for scholarships for students switching from public to private school. The Arizona Department of Revenue reports that all STOs that accepted individual donations received donations that qualified under the new PLUS credit. In 2013, STOs received $19.6 million in PLUS credit donations and awarded more than $5 million in scholarships. 2 According to the census, 70 percent of Arizona 4

households earn less than $75,000 per year. STOs were awarded a star if they provide 70 percent or more of their scholarships to students with families at or below 342.25 percent of the poverty line (this also includes scholarships to students from families with income levels at or below 185 percent of the poverty line.) STOs were given a (-) if less than 70 percent of their scholarships were awarded to students from families living at or below 342.25 percent of the poverty line. STOs were given a star if their donor application form did not include a space to recommend a specific student. STOs were given a (-) if the organization allowed donors to recommend a student or the STO s website did not include a disclaimer stating that scholarship awards will not be made based on parent or donor recommendations alone. School Choices Available According to Arizona law, STOs must allow scholarship students to choose between at least two private schools. Arizona s tax credit scholarships should allow parents and their children multiple choices between schools so that parents have the opportunity to use a scholarship at what they decide is the best school for their child. STOs were awarded a star if their scholarship awards were used at 10 schools or more. STOs earned half of a star if the scholarships were used at 5 or more schools (but less than 10). STOs were given a (-) if scholarships were used at fewer than 5 schools. Awards Made by Merit or Need Arizona law prohibits STOs from awarding scholarships solely on the basis of parent or donor recommendations. STOs should award scholarships based on a child s academic merit or financial need. Many scholarship organizations continue the practice of asking for donor recommendations for specific students. The Arizona Department of Revenue reports that 58 percent of scholarship organizations allowed donors to recommend individual students. This activity may violate federal tax code. 6 Endnotes 1 Arizona Revised Statutes, 43-1603 D. 2., available at http://www.azleg.gov/ FormatDocument.asp?inDoc=/ars/43/01603.htm&Title=43&DocType=ARS. 2 Arizona Department of Revenue, Private School Tuition Organization Income Tax Credits in Arizona: A Summary of Activity, FY 2013, p. 11, http://www.azdor.gov/portals/0/reports/fy2013%20private%20school%20 Tuition%20Org%20Credit%20Report.pdf. Note that the Department of Revenue says, The lag in receipt vs. payout is standard and not a cause for concern because STOs receive many donations at the end of the year and use these funds to pay scholarships in the following year. 3 U.S. Department of Agriculture, Food and Nutrition Service, National School Lunch Program Frequently Asked Questions, http://www.fns.usda. gov/sites/default/files/nslpfactsheet.pdf. 4 See Arizona Joint Legislative Budget Committee, Fiscal Note on HB 2291, February 26, 2014, available at http://www.azleg.gov/legtext/51leg/2r/fiscal/ hb2291.docx.pdf. 5 U.S. Census Bureau, Poverty Thresholds, https://www.census.gov/hhes/ www/poverty/data/threshld/. 6 Pat Kossan and Ronald J. Hansen, Ariz. Tuition-tax credit practices may violate federal tax laws, The Arizona Republic, December 27, 2009, http:// www.azcentral.com/news/articles/2009/12/27/20091227sto-irs1227.html. 5

SCHOOL TUITION ORGANIZATIONS WITH OVER $100,000 IN INDIVIDUAL SCHOLARSHIPS Rank Organization Indivdual Scholarship Dollars Awarded in 2013 Number of Scholarships Awarded with Individual Donations in 2013 Corporate Scholarship Dollars Awarded in 2013 Number of Scholarships Awarded with Corporate Low Administrative Donations in 2013 Costs ( % ) Scholarships for Poor Students ( % ) Scholarships for Poor and Working Class Students ( % ) School Choices Available Awards by Merit or Need Phone Brophy Community Foundation $1,035,594 478 $1,801,720 793 105.3 99.7 100.0 23 1 (602) 264-5291 BEST Student Fund $207,182 66 $0 0 97.6 72.3 100.0 2 1 (480) 392-9729 Chabad Tuition Organization $142,049 26 $0 0 90.0 100.0 100.0 4 1 (602) 944-2753 Christ Lutheran School Foundation $347,657 90 $0 0 91.5 84.1 100.0 3 1 (602) 957-7010 Montessori Scholarship Organization $568,423 180 $0 0 95.1 25.1 100.0 13 1 (602) 903-5629 Arizona Episcopal Schools Foundation $666,802 116 $107,783 28 65.0 64.6 99.1 4 1 (520) 320-1386 Arizona Waldorf Scholarship Fund $122,591 46 $0 0 93.8 62.7 93.5 2 0 (520) 325-5514 Catholic Education Arizona $7,863,065 4,613 $2,461,192 4,224 84.9 47.6 78.3 39 1 (602) 218-6542 Catholic Tuition Support Organization $4,033,870 2,296 $2,520,820 1,206 78.0 52.4 86.8 25 1 (520) 838-2558 Higher Education for Lutheran Program $843,585 601 $0 0 94.1 26.5 74.6 14 0 (623) 694-3487 Pappas Kids Schoolhouse Foundation $290,364 99 $239,825 73 85.3 97.2 100.0 14 0 (602) 441-5707 Shepherd of the Desert Education Foundation $190,842 59 $0 0 92.8 49.3 94.2 2 1 (480) 860-1188 Ext. 290 White Mountain Tuition Support Foundation $232,862 186 $0 0 93.8 51.2 93.0 2 1 (928) 521-3826 Jewish Tuition Organization $1,291,289 373 $45,953 276 88.6 48.4 76.7 7 1 (480) 634-4926 Northern Arizona Christian School Scholarship Fund $301,089 140 $82,149 74 90.1 47.2 83.6 5 0 (928) 649-6030 Arizona Adventist Scholarships $381,524 304 $2,250 2 94.4 55.7 67.2 10 0 (480) 991-6777 Arizona Christian School Tuition Organization $11,116,840 5,542 $0 0 92.4 23.7 53.0 120 0 (480) 820-0403 Arizona Private Education Scholarship Fund $1,231,570 689 $249,692 127 91.3 10.3 31.6 64 0 (480) 699-8911 Christian Scholarship Fund of Arizona $237,179 151 $0 0 88.2 65.3 96.0 13 0 (520) 322-0966 ext 301 Cochise Christian School Tuition Org $498,643 275 $0 0 97.2 26.4 60.6 16 0 (520) 378-3177 Institute for Better Education $6,476,594 3,488 $1,026,344 781 87.0 44.5 77.8 149 0 (520) 512-5438 Jewish Education Tax Credit Organization $579,255 73 $64,632 33 89.6 48.7 81.5 3 1 (520) 647-8442 Orme Primavera Schools Foundation $160,035 38 $0 0 89.5 20.9 83.1 2 1 (928) 445-5382 Schools With Heart Foundation $249,602 55 $0 0 93.1 23.1 56.1 3 1 (602) 252-5866 Southern Arizona Foundation for Education $300,228 140 $0 0 98.7 39.5 77.2 4 0 (520) 742-2882 Yuma s Education Scholarship Fund for Kids $668,488 399 $0 0 97.9 17.0 37.7 19 0 (928) 314-0033 Arizona Lutheran Scholarship Organization $193,644 87 $0 0 92.1 24.9 65.4 8 0 (480) 420-8660 Arizona Tuition Organization $1,229,692 712 $0 0 93.4 20.8 54.2 8 0 (602) 295-3033 Arizona Independent Schools Scholarship Foundation $762,778 183 $323,175 76 88.2 22.1 52.7 3 1 (520) 808-8883 Arizona Scholarship Fund $3,396,434 2,112 $4,926 8 57.2 32.4 57.8 163 0 (480) 497-4564 Financial Assistance for Independent Schools $344,198 48 $9,000 5 84.3 46.6 68.1 3 1 (928) 284-2272 Tuition Organization for Private Schools $1,360,320 992 $280,738 161 84.3 20.9 60.7 85 0 (480) 414-8677 School Tuition Association of Yuma $194,695 193 $100,527 166 86.5 18.6 53.5 7 0 (928) 782-5786 Sources: Arizona Department of Revenue, "Private School Tuition Organization Income Tax Credits in Arizona: A Summary of Activity FY 2013." Due to unresolved questions about the data submitted to the state, ASCT will not be included in this year s report

Ensuring a Better Future Founded in 2001, the Hispanic Council for Reform and Educational Options (Hispanic CREO) addresses the crisis in Hispanic education by providing parents with information and resources to empower them in becoming advocates for their children. Hispanic CREO has been able to educate, inform and mobilize parents on the issues surrounding school choice. By creating coalitions with parents, schools, advocates, faith-based organizations and many other concurrent groups, Hispanic CREO can make revolutionary changes to the education system to enhance Hispanic children s futures. Hispanic CREO is the only national public policy Hispanic organization dedicated solely to K-12 education reform to advocate for parents and children. The most recent research and studies available today along with the 2010 U.S. Census solidifies the crisis that exists in Hispanic student achievement. Currently, Hispanics are the most undereducated minority group in the United States. Hispanic CREO believes that education is a civil right for every child in the country and by advocating for parental and school choice, it ensures a better future for our children. WWW.HCREO.COM