Supreme Court Weighs Arizona's Tax Credit for Private Schools

Nov. 3, 2010 -- The Supreme Court today debated an Arizona law that allows state residents to receive tax credits for contributions to nonprofit organizations. The groups, in turn, give scholarships to public school students who want to attend private schools.

The Arizona legislature passed the law in 1997 to encourage greater educational choice for disadvantaged elementary school children. Any taxpayer can participate, but parents are forbidden from earmarking a donation for their child.

The law has come under intense criticism, however, from some Arizona taxpayers who say, in practice, most of the nonprofit organizations -- called School Tuition Organizations (STO's) -- that receive the funds only provide aide to students at religious schools.

The taxpayers filed a lawsuit arguing that the law is a violation of the Establishment Clause of the Constitution prohibiting government actions from favoring one religion over another. The taxpayers argue that the policy funnels state money to religious schools.

The justices will have to decide two issues: first, whether the taxpayers have the legal right, or "standing," to bring the case. If the court finds the taxpayers are sufficiently harmed by the policy, it will then decide the constitutional merits of the case.

In most cases, taxpayers do not have the right to challenge government expenditures, but the court has granted exceptions to that rule in cases regarding the Establishment Clause.

Acting Solicitor General Neal Katyal argued in court today that the taxpayers in this case do not fit into such an exception because "not a cent" of their own money goes to fund religion.

But he was challenged by some of the more liberal members of the court.

Justice Sonia Sotomayor brought up the argument of the taxpayers: "Their point is that this tax money does belong to the state" she said, "... either you pay it to the state or you use it for this purpose."

Establishment Clause at Issue

Justice Elena Kagan asked him whether the court had been wrong in prior cases to allow taxpayers to challenge similar programs.

Experts on the Establishment Clause are carefully watching how the Court will deal with the issue of standing.

"If they throw the case out on standing," professor Ira C. Lupu of George Washington University Law School said, "that will be one more move in the direction for shrinking the right of taxpayers to complain."

When the justices turned to the constitutional merits of the case, Paula S. Bickett, a lawyer for the state of Arizona, argued that the law is constitutional.

"Arizona's tax credit does not violate the Establishment Clause, " she argued, "because it's a neutral law that results in scholarship programs of private choice."

But Paul Bender, a lawyer for the taxpayers, challenged Bickett's assertion, arguing that the program cannot qualify as "neutral" because some of the STOs are religious in nature and discriminate on the basis of religion.

"Our claim is that state money is being given to the beneficiaries of a state spending program on the basis of religion," he argued. "It's a claim about discrimination in the distribution of these stated funds."

Bender was challenged by Chief Justice John Roberts. "How does this take the beneficiaries' religion into account when the program works ... exactly the same way if it's a non-religious school?" Roberts argued. "The state doesn't care whether it goes to a religious school or not."

Justice Antonin Scalia told Bender it was a "great leap" to say that the funds are "government funds."

He pointed out that the money is generated from a tax credit. "This money has never been in government coffers," Scalia said.

Justice Anthony Kennedy also expressed some skepticism. "I have some difficulty that any money that the government doesn't take from me is still the government's money."

Bender held fast to his argument, saying, "If there were no state income tax, there would be no tax credit program."

Court Decision Due by Spring

In the audience today was Pastor Glenn Dennard, a parent whose children received scholarships from one of the STOs, called the Arizona School Choice Trust.

Since 1998, Dennard and his wife, Rhonda, have taken advantage of the law that allowed five of their six children to attend private school.

"When I learned about the program," he said before the Supreme Court hearing, "I said, 'What a blessing,' an organization with the sole purpose of allowing people who wouldn't ordinarily have access to the best schools, access to the best."

Timothy D. Keller, an attorney for the Institute for Justice, represents the Dennards. "These are real children, the court's decision will have real consequences on their educational futures," he said.

"It means a tremendous amount to the parents participating in this program to be able to choose the school that will best meet their child's unique educational needs. "

The Court will decide the case by the spring.