Members of the Legislature’s new Bipartisan Task Force on Private School Tuition Tax Credits met for the first time Monday to discuss possible waste and fraud in the state’s tuition tax credit program.

The investigation was sparked by stories from local media outlets detailing possible tax-law violations and favoritism within the system.

The stories alleged that the state’s school tuition organizations, or STOs, which provide students from lower- and middle-income families with scholarships to attend private K-12 schools, have wasted taxpayer money with personal benefits for board members, including automobiles and real estate.

“Recent articles have compelled the Legislature to take a good and serious look at this issue,” said Rep. Tom Chabin, D-Flagstaff. “[Hopefully] we can embrace good public policy through the construction of a law that prevents waste and abuse of taxpayer dollars.”

Other state legislators on the task force include Rep. Rich Crandall, R-Mesa, Rep. David Schapira, D-Tempe, and Rep. Nancy Young Wright, D-Tucson.

Crandall estimated the state gives up about $60 million a year in tax breaks to individuals and corporations donating to STOs. Additionally, the tuition organizations are tax-exempt because they are considered nonprofit charities.

Crandall said this level of funding demands oversight.

“STOs … are the only tax credits that have no accountability,” Crandall said. “At the end of the day, no one has to file a report that says, ‘here’s how [the funds] were used, here’s what our goals were with this money, here’s what we did with it, here’s how we achieved those results.’”

Larry Mohrweis, an accounting professor at NAU, gave a presentation to the committee on possible solutions to the problems within the system.
Mohrweis suggested giving the state Department of Revenue Services the power to audit STOs annually, keeping board members from using taxpayer money for their own private gain.

The current system, he said, leaves the department powerless because it cannot audit the tuition organizations.

“When you have these organizations operating without controls over them, you are inviting fraud,” he said.

Mohrweis, whom Schapira called “the Nostradamus of STOs,” has been writing about the program’s flaws since 2002, when he penned an editorial on the potential for fraud and waste within the system.

One problem, Mohrweis said, is that state law does not have an income limit mandating which families are eligible for scholarship money.

Although most STOs have an income limit that only allows lower- and middle-income families to be subsidized, state law currently allows STOs to give out scholarships to anyone — even wealthy families, he said.

Mohrweis said this violates the spirit of the law, passed in 1997, which was designed to provide students from all backgrounds with school choice.

“We really need to look at the definition of school choice,” Mohrweis said. “Wealthy families, by definition of being wealthy, have school choice. It is the middle-class families, the families with low or moderate income, that don’t have school choice.”

Legislators said the committee is an important first step toward establishing oversight of STOs.

“Public dollars demand public oversight,” Young Wright said. “And I’d like to see us provide some kind of transparency.”

Reach the reporter at derek.quizon@asu.edu.