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School tuition legislation could cost state up to $28.5M

The Senate on Jan. 19 approved a two-bill package that expands a program allowing a dollar-for-dollar tax credit for contributions to groups that give scholarships to private school students.

How the legislation would affect the state’s finances is largely dependent on the reactions of taxpayers and students.

One of the measures, SB1047, would double the amount that individuals can claim in tax credits for contributing to school tuition organizations (STOs) — up to $1,000 for individuals and up to $2,000 for married couples.

School tuition organizations hand out scholarships to students who attend private schools.

One estimate by the Legislature’s budget research arm puts the impact at $4 million in fiscal 2013.

In order to offset the hit, about 800 students would have to shift from public schools to private schools. The state would recoup the money by having those students’ education funded by an entity other than the state itself.

But another scenario, which considers how taxpayers reacted the last time that contribution limits to school tuition organizations were increased, puts the negative impact at $28.5 million.

Budget analysts, however, say the fiscal hit would be substantially less than that figure for several reasons.

One reason is that a smaller subset of students would qualify to get the scholarships allowed by the bill, which essentially restricts it to “switchers” — students who are attending public schools now and are switching to private schools if they get the tuition aid.

The bill also prioritizes students and their siblings who are on STO waiting lists.

Also, current law doesn’t allow donors to designate that specific students get the scholarships.

Actually, the bill also disallows donors from getting the tax credit if they designate dependents to get the scholarship or scheme with other donors to earmark their contributions for specific students.

Additionally, the number of people who can double their STO contributions may simply be limited.

The second measure, SB1048, allows corporations to count treasury stock as scholarship contributions that they can get a tax credit for.

Budget analysts said its financial impact to the general fund in fiscal 2013 is unknown.

As expected, senators were divided along party lines. Democrats opposed the measures while Republicans backed them.

Both measures, which were introduced by Sen. Rick Murphy, R-Peoria, received a 19-9 vote.

Their next stop is the House, which must also approve the measures before the governor can sign or reject them.

While there wasn’t much discussion during the vote, Republicans and Democrats vigorously debated the portion of revenue generated by STOs, which get the tax-credited contributions, should go toward scholarships or administrative costs.

Current law says 90 percent of STO revenues should be spent for scholarships.

The Republican-backed legislation the Senate approved modifies this requirement to say 90 percent of the tax-credited contributions — instead of STO’s total revenues — should go toward scholarships.

This means a greater portion of non-tax credited revenues like endowment money may go toward the costs of running an STO.

Sen. Paula Aboud, D-Tucson, unsuccessfully offered an amendment to increase the amount that should go toward scholarships to 92.5 percent. The amendment was rejected by the Senate.

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