Gov. Doug Ducey on Thursday signed a bill that will rein in unchecked growth in a program that provides tax income credits to corporations that contribute money to scholarships for students to attend private K-12 schools.
Corporations receive a dollar-for-dollar credit on their income taxes if they contribute to school tuition organizations that provide private school scholarships to low-income students or students with disabilities. The cap on the program was set at $10 million per year in 2006, but it included an “escalator” that increased that cap by 20 percent each year.
As a result, the cap hit $89.2 million for the current fiscal year. According to the Joint Legislative Budget Committee, it was slated to reach nearly $222 million by 2023.
That growth will slow substantially as a result of Senate Bill 1485. Under the new law, the cap will grow only by either 2 percent or inflation annually, whichever number is greater. The 20-percent cap will phase out through 2023, when the cap will hit $145 million.
The STO cap has long been a source of partisan dispute, with Democrats seeking to curb a program they view as inappropriately siphoning money from public schools and directing tax dollars to private schools. Republican supporters of school choice have traditionally resisted such moves, especially former Senate President Steve Yarbrough, who operates one of the biggest STOs in the state.
But Republicans have grown increasingly receptive to the idea of limiting growth in the STO cap. Yarbrough pushed a proposal in 2018, his last year in the legislature, which would have capped growth at 2.5 percent or inflation, while expanding eligibility for scholarships and allowing STOs to charge application fees. Democrats opposed the legislation, and Yarbrough pulled his legislation in the House of Representatives after concluding that it lacked support.
Sen. J.D. Mesnard, R-Chandler, who sponsored SB1485, pushed a new cap this year without some of the extra provisions that repelled Democratic lawmakers last year. The result was a unanimous vote in both chambers of the legislature.