Appeals Court Overturns Decision to Dismiss ACLU Lawsuit Challenging Constitutionality of Arizona Individual Tax Credit Program

Affiliate: ACLU of Arizona
April 21, 2009 12:00 am

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PHOENIX – In an important victory for religious freedom, the United States Court of the Appeals for the Ninth Circuit today ruled that a lawsuit challenging the constitutionality of Arizona’s individual tax-credit funded scholarship program can move forward. The unanimous ruling comes in a case brought by the American Civil Liberties Union of Arizona.

In its decision, the federal appeals court held that the program was unconstitutional because of religious discrimination in the awarding of scholarships. The program, enacted by the Arizona Legislature in 1997, gives individual taxpayers a dollar-for-dollar tax credit for contributions to “school tuition organizations,” also known as STOs. These STOs are then responsible for using at least 90% of their funds to provide scholarships for students to attend private schools. Local studies have shown that 80% of the students benefiting from the scholarships are already enrolled in private schools.

Most of the scholarships are awarded by STOs affiliated with religious organizations and can only be used at religious schools. For example, the largest STO – the Catholic Tuition Organization of the Diocese of Phoenix – awards scholarships that can only be used at diocese schools. The second largest STO, the Arizona Christian School Tuition Organization run by Representative Steven B. Yarbrough (R-Chandler), expressly restricts scholarships for use at “evangelical” Christian schools.

The Ninth Circuit held that such religious discrimination in the distribution of the scholarships was unconstitutional and deprived parents of free choice in how to use the scholarships.

“We are pleased that the Ninth Circuit has recognized that religious discrimination in the awarding of scholarships from tax revenues violates fundamental rights of religious freedom,” said ASU Law Professor Paul Bender, who argued the case on behalf of the ACLU of Arizona, along with ACLU of Arizona cooperating attorney Marvin Cohen.

The Arizona Supreme Court upheld a challenge to the statute enacting the individual tax program in 1999 in an ACLU lawsuit entitled Kotterman v. Killian. The court concluded that – as written – Arizona’s Revised Statute § 43-1089 was not unconstitutional because it gave parents free choice in where to use the scholarships. After it became apparent that most of scholarships could only be used at religious schools, thus depriving parents of free choice, the ACLU challenged the program “as applied.”

In today’s decision, the federal appeals court sent the case back to the district court in Phoenix, saying that the court should not have dismissed the case and that the case should move forward on behalf of the taxpayer plaintiffs.

This case is one of several lawsuits challenging Arizona’s use of taxpayer money to support private and sectarian schools. The Arizona Supreme Court recently struck down the constitutionality of two state-run voucher programs as a violation of the Arizona Constitution’s ban on state financial aid for private and sectarian schools. In addition, a challenge on similar grounds is pending in the Arizona courts to the state’s corporate tax credit program.

“These decisions are especially welcome at a time when the state is encountering a severe budget crisis and districts are laying off thousands of teachers; the last thing we need is to siphon more money away from neighborhood public schools.” said ACLU of Arizona Executive Director Alessandra Soler Meetze.

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