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Home / Capitol Insiders / Adding STO expansion to tax fix bill backfires, draws veto 

Adding STO expansion to tax fix bill backfires, draws veto 

Rep. J.D. Mesnard, R-Chandler, an ardent supporter of the state’s school tuition organization (STO) program, was the author of the first STO bill (HB2581) Gov. Jan Brewer vetoed this session. He and other STO supporters, including Sen. Steve Yarbrough, R-Chandler, thought their revived version of the bill, SB1186, would pass muster with Brewer. She vetoed that measure as well. (Photo by Ryan Cook/RJ Cook Photography)

Rep. J.D. Mesnard, R-Chandler, an ardent supporter of the state’s school tuition organization (STO) program, was the author of the first STO bill (HB2581) Gov. Jan Brewer vetoed this session. He and other STO supporters, including Sen. Steve Yarbrough, R-Chandler, thought their revived version of the bill, SB1186, would pass muster with Brewer. She vetoed that measure as well. (Photo by Ryan Cook/RJ Cook Photography)

Reeling from a veto in early April of a bill that would have dramatically expanded a tax credit program for private school scholarships, pro-school-choice legislators deleted the provisions Gov. Jan Brewer cited in her veto message.

They also scaled down the expansion, cutting by about half any potential fiscal hit to the state’s coffers, and tried again.

But it still wasn’t enough to persuade Brewer that the bill would not negatively impact the state’s already shaky finances.

And backers’ calculated risk to tack the private scholarship provisions onto legislation that otherwise largely contained technical — but important — corrections to the state’s tax laws, in hopes of cajoling the governor into signing it, backfired.

Actually, the move gave Brewer another reason to veto the expansion of the state program that allows individuals to claim a tax credit for contributions made to groups that provide tuition scholarships to students who go to private schools.

For the governor, the tax corrections measure should have been free of major policy decisions.

The underlying measure contained technical language meant to correct errors and delete obsolete language dealing with tax laws. Each year, legislators must make a variety of minor changes to state law in order to conform to changes Congress makes to the federal tax code.

Brewer said she had to reluctantly reject SB1186, despite those necessary corrections.

As amended, the measure “undoubtedly stretches the limits of what is appropriate for a tax corrections bill,” the governor said in a letter that accompanied her April 27 veto.

“By this veto,” the governor wrote, “I hope to inspire a return in the 50th and 51st Legislature to the traditional and customary understanding that certain bills are intended for specific purposes and should be held by leadership as off-limits from substantive policy changes.”

And as a result, Brewer wrote that she may now have to convene a special session to pass those underlying provisions.

But Sen. Steve Yarbrough, R-Chandler, the bill’s author and an ardent backer of the school tuition organization (STO) program — and an owner of the Arizona Christian School Tuition Organization, one of the state’s largest STOs — rejected any notion that he’s not a traditionalist and he had somehow misused a technical bill to advance substantive policy decisions.

The tax corrections bill already contained substantive provisions even before the STO language was added to it, including amendments to the recently-signed “jobs” bill that the Governor’s Office pushed for, Yarbrough said.

There had been no assurances that Brewer would look at the measure favorably, and her office had also told supporters she didn’t want the scholarship provisions amended onto the tax clean-up bill, SB1186.

By pushing ahead, pro-school choice legislators might have, in fact, courted a veto.

Supporters were certainly conscious of the pros and cons that Brewer faced as a result of the amendment.

With the school tuition language in the tax corrections measure, the school choice advocates were playing a game of brinksmanship with the governor, hoping the necessity of the tax law changes would force her to expand the tax credit program.

“That’s a risk we certainly knew,” said Rep. J.D. Mesnard, R-Chandler, author of the school tuition bill that Brewer vetoed earlier.

For Mesnard and other supporters of the STO program, therefore, the scaled down version fitted the governor’s philosophy.

Backers also said they chose SB1186 primarily out of necessity. Quite simply, time was running out as the session was winding down. They needed a vehicle to try and salvage the proposal to expand what for them is a program that has aided students and parents, and has helped the state save money.

In rejecting SB1186, Brewer affirmed her tendency to view proposals through the prism of the fiscal crisis that has been hounding the state in the past three years.

Brewer contended in her veto letter that the bill ultimately “fails to accomplish the stated intent of being revenue positive.”

Actually, it was the same approach Brewer took in rejecting HB2581, the original STO bill that the governor said would “(unbalance) the budget.”

That bill would have increased the amount of tax credits individuals can claim for contributions to organizations that provide scholarships for students who go to private schools. It would also have allowed businesses that pay a severance tax or luxury tax on liquor products to claim a tax credit for scholarship contributions for low income and disabled students.

SB1186 was a means to salvage a portion of the original STO measure after the veto. As amended, SB1186 would have increased the amount that individuals can claim for their scholarship contributions by 50 percent.

“It appears that the governor will be viewing school choice as a cost to the state,” Mesnard said after the most the recent veto.

He said that could mean the only way to advance similar proposals in the future would be to make them a part of the budget discussions.

Clint Bolick of the Goldwater Institute blasted Brewer’s decision to veto the STO expansion bill.

“We’re very disappointed that a governor who styles herself as pro-school choice would veto a bill that expands school choice,” Bolick said, adding, “Well, certainly, the governor should not call herself a school choice governor at this point. I hope that she will regain that status in the coming session.”

What’s particularly distressing is Brewer gave school choice supporters no indication that she was going to veto the original STO bill, Bolick said. “Even though we are supposedly allies, there was no warning that the original bill was in trouble,” he said.

The STO bills were but the latest in the perennial tug-of-war between policymakers who believe that more competition would lead to better schools, both in the private and public sector, and advocates of public education who argue that the private scholarships funnel money primarily to religious schools, particularly at a time when the state sorely needs those dollars.

Supporters said the program saves the state money by reducing the number of students that go to public schools.

Critics said the program is deeply flawed, lacks accountability and has been abused.

“We have our lawmakers telling us that we are broke,” said Anjali Abraham, public policy director of the Arizona chapter of the American Civil Liberties Union, which opposes the STO program.

“If that’s the case, I’m not sure how we can afford to give at least $9 million of revenue away via yet another school tax credit program,” she said.

As amended, SB1186 would have created a new individual income tax credit for contributions made to a school tuition organization that is certified to receive corporate contributions.

That meant that the contributions would have only gone to scholarships for displaced or disabled students or those from families earning below 185 percent of the federal threshold to qualify for reduced price lunches.

Also, the tuition scholarships can only be granted to students — called “switchers” — who transfer from a public school to a private school, although current laws allow students who are already receiving these scholarships to continue getting them.

The new credit would have been capped at $250 for singles and $500 for married couples filing jointly. That’s in addition to existing individual income tax credits, which are capped at $500 for singles and $1,000 for married couples.

According to estimates by the Joint Legislative Budget Committee, the legislation could negatively impact the general fund by $9 million.

That hit, however, would be offset if about 1,700 public school students switched to a private school, the Legislature’s budget research arm said.

In contrast, HB2581, the other STO bill that Brewer vetoed, was estimated to decrease the general fund by $17.2 million, which could only be offset if 3,300 students switched to private schools.

Backers pointed out that the new bill didn’t include the provisions in HB2581 that caused Brewer a lot of heartburn — such as removing the cap on the aggregate amount that corporations may claim in tax credits for their STO contributions and allowing businesses that pay a severance tax or luxury tax on liquor products to claim a tax credit also for scholarship contributions.

“I believe that the argument that it is budget-positive is absolutely persuasive and accurate,” Yarbrough said just before the governor sent out her veto letter.

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