A stalemate between Republicans and Democrats means that Arizona corporations will be able to continue diverting an ever-increasing share of their state income tax to help students attend private and parochial schools.
On a party-line vote, the Senate gave preliminary approval last week to changes allowing 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 of their children at private schools.
But what SB 1467 was missing was the promise by Senate President Steve Yarbrough, R-Chandler, to finally 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.
And the law will allow corporations to divert more than $89 million this year, $107 million next year and $128 million the year after that.
More to the point, there is no limit. And at that rate, corporations could owe the state nothing by 2027.
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 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 told Capitol Media Services after the vote that any blame for failing to curb the 20 percent year-over-year increase falls on the Democrats.
He says the Arizona Constitution spells out that any tax increase requires a two-thirds vote of the Legislature. That same supermajority requirement applies when a tax credit is eliminated.
The Senate president contends that also applies to repealing the 20 percent annual increase. But Republicans hold only 17 of the 30 Senate seats.
“I couldn’t get two-thirds vote to change, reduce the escalator as I had proposed,’’ he said.
Yarbrough brushed aside claims by Democrats that he essentially 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.
“The other stuff was, frankly, extraordinarily insignificant, in my opinion, in the whole scheme of things,’’ he said. “It was almost throw-away stuff.’’
But Yarbrough conceded there was a political motive behind that, too: appeasing supporters who like the idea of tax dollars being used, at least indirectly, to underwrite the cost of some students going to private and parochial schools.
“It was something to try to appear at least that there was something being given to the pro school choice side for giving up something enormous,’’ he said.
But Farley said, “It doesn’t actually cut back on the hole this is blowing in the state budget. And it certainly doesn’t do anything to help us pay our teachers more to solve our teacher crisis.’’