Charles North

During a series of legislative hearings about Arizona’s individual tuition tax credits which wrapped up Thursday, one presence loomed over the proceedings all the way from Baylor University in Texas. Economics professor and school-choice advocate Charles North wrote an analysis stating with confidence that tuition tax credits ultimately save taxpayers a lot of money, because Arizona spends less encouraging students to attend a private school than it would cost to educate those kids in a public classroom. Unfortunately, proponents of tuition tax credits are misreading North’s work and making inaccurate claims about how the tax credits could help with the state’s immediate budget crisis.

It might be too late to stop this political myth. But I’m going to try. As a school-choice proponent myself, I am aware that inaccurate information damages the cause and feeds the irrational nightmares of some public school defenders.

Quick background: Anyone in Arizona can donate money to a student tuition organization to help pay private school tuition for a student in grades kindergarten through 12th grade. In exchange, donors can take a tax credit on their personal income tax returns for up $500 per individual or $1,000 per couple. The goal of the tax credits is help more students attend private schools while avoiding a state constitutional prohibition on tax dollars aiding private or religion schools. However, critics have consistently argued that tuition tax credits hurt public education by preventing tax money from reaching the state’s general fund.

North recently prepared his analysis for a House committee looking into media investigations of the individual tuition tax credits a decade after the program was created. For example, the Tribune’s series “Rigged Privilege” reported there’s little hard evidence to support the claims of either supporters and critics about the impact of the tax credits on the state budget. No one tracks how many different students receive the scholarships (at least some kids receive multiple scholarships at one time), nor does anyone know how many students who receive the state-aided scholarships still would attend private schools without them.

North gave his best estimate about how the tax credits affect the bottom line. But the lack of information forced him to work with a range of possibilities from every student taking a tax-credit scholarship would be in public school otherwise, to only 43 percent of those students need the scholarship to stay in private classes. However, North did conclude that the average scholarship costs about $6,000 less than what public schools spend on average to educate a student.

The conclusion: North calculated that without the tax-credit scholarships, public schools would have to spend another $99 million to $241 million a year to take those students no longer attending private schools. Subtract $55 million handed out annually in tax credits, and taxpayers are saved $44 million to $186 million a year.

There’s nothing wrong with North’s assumptions. But his calculations include all tax dollars spent by public schools, not just the money they get from the state’s general fund. This includes federal dollars, local property taxes and dedicated sales tax monies.

Proponents are holding up North’s estimates as savings for the state budget, but that’s not correct. To get an apples-to-apples comparison, we would need an estimate for the public school money that comes from the general fund, which is only a subset of all funding that schools receive.

Is that estimate possible? Well, North says legislative budget experts have calculated that total K-12 education spending from all sources is $8.9 billion. The budget for the state Department of Education is about half of that. So, doing simple division on North’s numbers, you could say that the tax-credit program saves $44.5 million to $135.5 million in general fund spending.

But compared to what the tax credits cost ($55 million), the lower end of North’s estimate suddenly becomes a net loss for the state. In other words, the tax credit program could be costing the state more than it saves, just as the critics content.

To be fair, this is dirty math that probably isn’t anywhere near accurate. Using an alternative calculation, the Arizona Republic recently estimated the tax-credit program saved the general fund $8.3 million in 2007. That’s a sizeable amount of money, but far less than North’s range.

What I’m trying to illustrate is: Proponents have strong ground to say tuition tax credits save taxpayers big bucks. But those savings are dispersed over multiple sources, some of which are beyond the control of state lawmakers and couldn’t be used to balance the budget anyway. Lawmakers are on much shakier ground trying to justify any changes to the program as a means of immediate budget relief.

You can watch North’s presentation in November to the House committee here.