Senate president wants big corporate tax credit boost ended

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The Republican leader of the Arizona Senate wants to end annual 20 percent increases to a corporate tax credit that funds private school scholarships.

Senate President Steve Yarbrough said the yearly boost that has been repeatedly criticized by Democrats as unsustainable will at some point exceed total corporate income tax collections.

The program currently allows $74 million in corporate taxes to be diverted to Arizona's School Tuition Organization program, which helps parents pay tuition at private and parochial school.

Arizona collected about $368 million in corporate taxes in the most recent fiscal year and they are dropping because of tax cuts.

Democrats argue the so-called STO program siphons cash from public schools. Senate Minority Leader Katie Hobbs said Wednesday they are concerned about other parts of Yarbrough's proposal, including provisions allowing bigger payouts to parents, application fees for groups administering the scholarships and allowing children to switch from tax credit scholarships to the state's voucher program.

They want a hard cap and not the smaller yearly inflation adjustments he is seeking.

"I think at some point that cap might be meeting its natural leveling off - we saw it get reached slower this year than it has in the past," Hobbs said. "I think he sees this as an opportunity to get some provisions into the tax credits that he would like to see and that the supporters would like to see."

Yarbrough, who is leaving the Senate after this year, said he wants to control changes to the program he has championed since he negotiated in 2006 with then-Democratic Gov. Janet Napolitano. The corporate tax credit law started at $10 million and has ballooned under the 20 percent per year automatic increase.

"The deal I made with Gov. Napolitano in 2006 was there would be a cap," he said. "If the cap is beyond the totality of the income tax it's not a cap."

The corporate tax credits for relatively low-income children and the disabled are funneled through STOs. Yarbrough ran one of the groups for years before retiring at the end of 2017 and was able to charge a 10 percent fee on every student's scholarship. A second program allows individuals to donate to scholarships and get a dollar-for-dollar tax credit.

Together, the two programs distributed about $160 million last year.

Yarbrough said changing the program will require a supermajority vote of the Legislature because it effectively raises state revenue and that's what the state Constitution requires for tax and other revenue increases.

Under his proposal, the 20 percent annual boost would drop by 5 percent in each of the coming three years and then have an annual inflation adjustment. In about four years, it will hit about $100 million a year - more than $50 million below what it would be if the 20 percent boost remains in effect.

"So I want to control that bill and if at the end of the day the opponents of school choice, the folks who don't like the escalator, if they don't want to be handed this golden opportunity, so be it," Yarbrough said. "Then they will forever have to own the fact that they had a great opportunity to do this."

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