Arizona senators can’t agree on how to cap corporate tuition tax credits

PHOENIX — A stalemate between Republicans and Democrats means that Arizona corporations will be able to divert an ever-increasing share of their state income tax to help students attend private and parochial schools.

On a party-line vote, the Arizona Senate gave preliminary approval Wednesday to changes in laws that give corporations a dollar-for-dollar credit against their state taxes for money they give to “scholarship tuition organizations.” These STOs, in turn, provide funds parents can use to pay the tuition and fees for their children at private schools.

But Senate Bill 1467 was missing the promise made earlier by Senate President Steve Yarbrough, R-Chandler, to eliminate a provision in the law that, if not capped, could eventually mean corporations would pay nothing into the state treasury.

Under the original STO law, the diversion of corporate taxes was limited to $10 million.

But proponents, led by Yarbrough, put in an automatic escalator, allowing that cap to rise by 20 percent a year. This past year the diversions totaled $74 million.

The law will allow corporations to divert more than $89 million this year, $107 million next year and $128 million the year after that.

There is no limit. And at that rate, corporations could owe the state nothing by 2027.

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Yarbrough, who until late last year ran one of these STOs, offered to phase down that year-over-year increase so that by 2022 it would be no more than 2.5 percent a year or inflation, whichever is larger.

But Yarbrough also put language into SB 1467 to increase the amount of some of the other tax credits available for these scholarships. And when Democrats refused to go along, Yarbrough reversed course and decided to leave that 20 percent annual increase in law.

Yarbrough said after the vote that any blame for failing to curb the 20 percent year-over-year increase falls on the Democrats.

But Democrats claimed he created what Sen. Steve Farley, D-Tucson, called a “Trojan horse,” pushing the measure as scaling back the credits even as other provisions increased the cost.

Yarbrough said he added the other language to appease the “pro school choice side for giving up something enormous.”

In doing so, he angered the Democrats, who have never supported the diversion of tax dollars for private education. Farley said the trade-off proposed by Yarbrough made no sense for Democrats.