PRIVATE SCHOOL TUITION ORGANIZATION INCOME TAX CREDITS IN ARIZONA SUMMARY OF ACTIVITY: FY 2014/2015

PRIVATE SCHOOL TUITION ORGANIZATION INCOME TAX CREDITS IN ARIZONA SUMMARY OF ACTIVITY: FY 2014/2015 Arizona has four income tax credits for taxpayer donations to school tuition organizations (STOs). Two credits are for donations by individuals 1 and two credits are for corporate donations. 2 (The corporate donations can be claimed as a tax credit against corporate income tax or insurance premium tax.) CERTIFICATION Arizona law requires an STO to be certified by the Arizona Department of Revenue (ADOR) before it can begin collecting donations for tax credit purposes. The STO must be certified to collect donations from individuals and it must be certified to collect donations from corporations. Appendix 1 (pg. 25) lists all STOs which collected donations during FY 2014/2015 (FY2015) and their certification period. A total of 63 STOs were certified to operate in FY2015. Nine STOs that were certified for individual donations did not have corporate certification. Eight STOs that were certified for corporate donations did not have individual certification. Four STOs dissolved in FY2015. TOTAL DONATIONS to STOs since the beginning of the individual credit in 1998 through the end of FY2015 total $952.4 million. donations for the original credit have made up the majority of this amount, 71.6%, because of the longer period of time in which this credit has been available and because of a greater volume of donations. The following table shows total donations from each credit type. Time Period Original Switcher Low-Income Student Corporate Disabled- Displaced Corporate Total CY1998 $1,815,798 $1,815,798 CY1999 $13,781,341 $13,781,341 CY2000 $17,701,284 $17,701,284 CY2001 $24,897,444 $24,897,444 CY2002 $26,512,683 $26,512,683 CY2003 $29,444,972 $29,444,972 CY2004 $31,846,494 $31,846,494 CY2005 $42,196,206 $42,196,206 CY2006 $51,012,326 $7,260,800 $58,273,126 CY2007 $54,304,968 $14,258,000 $68,562,968 CY2008 $55,260,728 $9,122,121 $64,382,849 CY2009 $50,916,897 $7,285,284 $781,000 $58,983,181 CY2010 $43,163,214 $11,123,657 $956,880 $55,243,751 1 A.R.S. 43-1089 and 43-1089.03 2 A.R.S. 43-1183 and 1184 or A.R.S. 20-224.06 and 20-224.07 Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 1

Original Switcher Low-Income Student Corporate Disabled- Displaced Corporate Time Period Total 2 nd half of FY2011 3 $12,818,405 $2,301,803 $770,000 $15,890,208 FY2012 $51,918,033 $23,975 $19,135,987 $283,000 $71,360,995 FY2013 $54,794,058 $19,891,765 $29,858,865 $3,505,350 $108,050,038 FY2014 $58,129,582 $26,060,133 $35,831,808 $2,925,845 $122,947,368 FY2015 $61,740,333 $30,750,957 $42,998,170 $5,031,920 4 $140,521,380 TOTAL $682,254,766 $76,726,830 $179,176,495 $14,253,995 $952,412,086 Of all donations from both corporate and individual donors since 1998, Catholic Education Arizona has collected the most at $173.3 million or 18.2% of all donations. The second largest recipient of donations has been the Arizona Christian School Tuition Organization at $157.7 million or 16.6% of all donations (although this organization only accepts individual donations). Appendix 2 (pg. 27) shows every organization that has received donations, with the total received by credit type, since 1998. The STOs that are highlighted are no longer operational. In FY2015, Arizona Christian School Tuition Organization collected the most from all four programs at $18.2 million or 13.0% of all donations. TOTAL SCHOLARSHIPS STOs since the beginning of the individual credit in 1998 through the end of FY2015 total $780.2 million. individual donations have made up the majority of this amount, 78.0%, because of the longer period of time in which this revenue has been available and because of fewer restrictions on scholarships from individual donations than from corporate donations. The following table shows total scholarships from each credit type. Time Period from from Switcher Low-Income Student Corporate from Disabled- Displaced Corporate Total CY1998 $103,790 $103,790 CY1999 $2,196,734 $2,196,734 CY2000 $13,561,981 $13,561,981 CY2001 $16,484,958 $16,484,958 CY2002 $22,826,746 $22,826,746 CY2003 $24,428,197 $24,428,197 CY2004 $28,025,083 $28,025,083 CY2005 $30,863,153 $30,863,153 CY2006 $40,594,978 $49,380 $40,644,358 3 The reporting period was changed from calendar year to fiscal year. In the first year of this change, FY2011, the first 6 months of donations was included in CY2010 figures. 4 Total donations reported for FY15 were greater than the cap due to monies received at the end of FY14 that were not deposited until FY15. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 2

Time Period from from Switcher Low-Income Student Corporate from Disabled- Displaced Corporate Total CY2007 $48,561,687 $4,597,823 $53,159,510 CY2008 $54,205,394 $7,615,639 $61,821,033 CY2009 $52,127,262 $7,849,824 $625,335 $60,602,421 CY2010 $47,333,755 $9,259,078 $715,424 $57,308,257 2 nd half of FY2011 5 $27,881,253 $3,220,519 $66,837 $31,168,609 FY2012 $45,209,410 $11,294,842 $583,865 $57,088,117 FY2013 $48,878,707 $4,681,192 $17,556,127 $731,231 $71,847,257 FY2014 $49,610,422 $17,561,453 $24,167,516 $1,611,469 $92,950,860 FY2015 $55,483,157 $24,667,347 $31,355,396 $3,592,866 $115,098,766 TOTAL $608,376,667 $46,909,992 $116,966,144 $7,927,027 $780,179,830 As with donations, the Catholic Education Arizona has paid the most in scholarships since 1998 at $150.0 million, or 19.2% of all scholarships. The STO paying out the second largest amount in scholarships is the Arizona Christian School Tuition Organization at $140.9 million or 18.1% of all scholarships. Appendix 3 (pg. 31) shows every organization that has paid scholarships, with the total paid by credit type, since 1998. The STOs that are highlighted are no longer operational. In FY2015, Arizona Christian School Tuition Organization paid the most in scholarships for all four programs at $16.3 million or 14.1% of all scholarships. In terms of where the scholarship money went within Arizona, the majority went to schools within the City of Phoenix. About 34% of the scholarships and the scholarship money went to Phoenix private schools. Similarly, 63% of the scholarships and of the scholarship money went to schools in Maricopa County. The following table shows the number of scholarships, the amount of scholarships and the average scholarship paid out by county in FY2015. County # of Scholarship $ Avg. Scholarship Apache 591 $546,235 $924 Cochise 842 $1,703,227 $2,023 Coconino 764 $1,092,224 $1,430 Gila 448 $813,316 $1,815 Graham 33 $25,686 $778 Maricopa 40,011 $72,489,896 $1,812 Mohave 479 $686,751 $1,434 Navajo 856 $1,187,501 $1,387 Pima 13,645 $27,934,011 $2,047 Pinal 1,071 $1,468,138 $1,371 Santa Cruz 433 $500,000 $1,155 Yavapai 2,348 $3,227,552 $1,375 Yuma 2,430 $3,424,230 $1,409 5 The reporting period was changed from calendar year to fiscal year. In the first year of this change, FY2011, the first 6 months of scholarships was included in CY2010 figures. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 3

Appendix 4 (pg. 35) shows the cities or towns within which scholarship money was received, the number of scholarships, total scholarships and the average scholarship amount. RESERVING SCHOLARSHIPS FOR STUDENTS IN FUTURE YEARS STOs are required to allocate at least 90% of their donations to provide scholarships in each of the four donation programs. Allocate means to both award scholarships in the current year and to reserve money for an award for the following year or a future multiyear scholarship for a specific student. In FY15, STOs reported reserving $55.4 million from the four programs for specific students in future years. It should be noted that a significant portion of the reserved future year awards are reported by some STOs as scholarships to be awarded in the upcoming academic year. The breakdown between each donation program is shown below: $ Reserved for Future Year Awards Original Donation Program $15,890,130 Switcher Donation Program $6,312,645 Low-Income Corporate Donation Program $32,025,033 Disabled/Displaced Corporate Donation Program $1,138,422 Appendix 5 (pg. 37) shows reserved amounts by school at which the specific student will be attending. SALARIES PAID STOs are required by statute to report the names, job titles and salaries of the three highestpaid employees. Of the STOs certified in FY2015, 37 (or 58.7%) were staffed by volunteers. Appendix 6 (pg. 47) lists the 26 STOs that reported salaries. AUDIT OR REVIEW PROCESS STOs operating in FY2015 used 31 CPA firms, paying them $321,417. 6 The audit or review cost is listed for each STO in Appendix 7 (pg. 48). STOs paid as little as $900 and as much as $20,516 for their audit or review. These costs include audits or reviews for both individual and corporate receipts if the STO participated in both programs. INDIVIDUAL INCOME TAX CREDIT PROGRAM Arizona allows an individual income tax credit for donations made to STOs that provide scholarships to private schools. The original individual income tax credit for contributions to school tuition organizations is governed by A.R.S. 43-1089 and Chapter 16 in Title 43. A taxpayer could receive an income tax credit for a donation of $528 (for single, unmarried head of household and married filing separate taxpayers) or $1,056 (for married filing joint taxpayers) in tax year 2014; those amounts increased to $535 and $1,070 in tax year 2015. paid from these donations by STOs could go to any child attending a qualified private school. 6 STOs pay for the audit or review in the year following the year for which the audit or review was done. FY2014 audits and reviews were paid for in FY2015, the cost of which was reported on the FY2015 annual reports. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 4

The following table provides a summary of the change in the maximum original individual credit donation amount. Tax Year Single Filers Married Filing Joint Filers 1998-2000 $500 $500 2001-2004 $500 $625 2005 $500 $825 2006-2010 $500 $1,000 2011 7 $500 $1,000 2012 $503 $1,006 2013 $517 $1,034 2014 $528 $1,056 2015 $535 $1,070 Of the 55 STOs certified to receive individual donations in FY2015, 52 STOs received donations (Education Liberty Fund was certified near the end of the fiscal year and did not report receiving any donations.) A total of $61.7 million in tax credit donations from 80,930 taxpayers was reported for the fiscal year. The following table shows the number of STOs collecting donations in each period, the number of donations and the amount of tax credit donations. Percent change is calculated for prior year amounts reported. No percent change is calculated for FY2011 as this is the first fiscal year reporting period. Time Period # of STOs # of Amount % change CY1998 8 16 4,248 $1,815,798 CY1999 33 32,023 $13,781,341 CY2000 36 38,249 $17,701,284 28.4 CY2001 43 46,696 $24,897,444 40.7 CY2002 43 52,203 $26,512,683 6.5 CY2003 51 58,122 $29,444,972 11.1 CY2004 53 63,830 $31,846,494 8.2 CY2005 53 69,239 $42,196,206 32.5 CY2006 56 73,617 $51,012,326 20.9 CY2007 55 76,065 $54,304,968 6.5 CY2008 55 78,434 $55,260,728 1.8 CY2009 54 73,430 $50,916,897-7.9 CY2010 53 62,940 $43,163,214-15.2 FY2011 50 74,681 $51,408,122 9 FY2012 49 76,739 $51,918,033 1.0 7 Beginning with tax year 2011, the maximum credit amounts are to be adjusted each year for inflation. 8 Activity in 1998 was artificially low due to a legal challenge of the constitutionality of the credit, which failed. 9 There are 6 months that overlap between Calendar Year 2010 and Fiscal Year 2011. Some of the donations showing for Fiscal Year 2011 are already shown for Calendar Year 2010. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 5

Time Period # of STOs # of Amount % change FY2013 48 76,098 $54,794,058 5.5 FY2014 49 80,893 $58,129,582 6.1 FY2015 52 80,930 $61,740,333 6.2 Appendix 8 (pg. 50) shows the number and amount of donations received and the number and amount of scholarships awarded by each STO for FY2015. Arizona Christian School Tuition Organization received the most original individual donations in FY2015 of $12.5 million or 20.3% of total original individual donations. Fifty STOs paid $55.5 million in scholarships in FY2015, a 11.8% increase over FY2014. The following table shows the number of STOs providing scholarships in each period, the number of scholarships and the amount of scholarships paid. (For calendar years prior to 2003, the numbers are soft; reporting was not statutorily-required at that time.) As with the donations table above, no percent change is calculated for FY2011 as this was the first fiscal year reporting period. Please note that the number of scholarships paid does not equate to the number of students receiving scholarships. Many families seek scholarships from multiple STOs, resulting in one child being counted several times in the scholarship counts. Time Period # of STOs # of Amount % change CY1998 4 128 $103,790 CY1999 19 3,207 $2,196,734 CY2000 32 15,081 $13,561,981 517.4 CY2001 39 18,049 $16,484,958 21.6 CY2002 43 19,582 $22,826,746 38.5 CY2003 49 20,134 $24,428,197 7.0 CY2004 51 21,146 $28,025,083 14.7 CY2005 51 22,529 $30,863,153 10.1 CY2006 52 24,678 $40,594,978 31.5 CY2007 55 27,153 $48,561,687 19.6 CY2008 54 28,327 $54,205,394 11.6 CY2009 52 27,592 $52,127,262-3.8 CY2010 54 26,430 $47,333,755-9.2 FY2011 50 25,105 $46,091,539 10 FY2012 50 23,828 $45,209,410-1.9 FY2013 47 25,463 $48,878,707 8.1 FY2014 48 26,972 $49,610,422 1.5 FY2015 50 30,049 $55,483,157 11.8 Appendix 8 (pg. 50) also shows the original scholarships awarded by each STO for FY2015. The 50 STOs that paid original individual scholarships in FY2015 reported 30,049 scholarships for an average of $1,846. The two STOs that received donations but did not pay scholarships in FY2015 were newly certified during the fiscal year. Arizona Christian School Tuition 10 There are 6 months that overlap between Calendar Year 2010 and Fiscal Year 2011. Some of the scholarships showing for Fiscal Year 2011 are already shown for Calendar Year 2010. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 6

Organization paid the highest total amount of scholarships ($11.5 million or 20.7% of the total) and awarded the largest number of scholarships (5,834 scholarships or 19.4% of total). STOs are required to report the percentage of scholarship dollars that go to families with income of 185% or less of poverty level and the percentage of scholarship dollars that go to families with income ranging from above 185% of poverty level to 342.25% of poverty level. Income levels for FY2015 that fit into these ranges are shown in the following table: Household Size 185% of Poverty Level 342.25% of Poverty Level 2 $29,101 $53,837 3 $36,612 $67,732 4 $44,123 $81,628 5 $51,634 $95,523 6 $59,145 $109,418 7 $66,656 $123,314 8 $74,167 $137,209 Additional persons $7,511 $13,895 Across all STOs, 32.7% of original scholarship money went to children in families with income up to 185% of poverty level. Children in families with income between 185% and 342.25% of poverty level received 34.0% of the scholarship money. The remaining 33.3% of scholarship money went to children in families with income greater than 342.25% of poverty level. One organization gave 100% of their original scholarships to children in families with income of 185% or less of poverty level. An additional five organizations gave 100% of their scholarships to children in families with income of 342.25% or less of poverty level. Ten organizations gave more than 50% of their original scholarships to children of families with income greater than 342.25% of poverty level. Appendix 9 (pg. 52) shows the percentages for each STO. The range of the overall average original individual scholarship amounts paid by STOs is from $930 (School Tuition Association of Yuma) to $10,000 (Life Development Institute Education Fund). Average scholarship ranges and the number of STOs with scholarships falling in each range is shown in the following frequency distribution. Avg. Scholarship Range # of STOs Avg. Scholarship Range # of STOs $930 to $1,000 2 $2,501 - $3,000 6 $1,001 - $1,500 9 $3,001 - $4,000 6 $1,501 - $2,000 15 $4,001 - $5,000 1 $2,001 - $2,500 6 $5,001 - $10,000 5 Institute for Better Education provided scholarships to 181 schools, more than any other STO. Appendix 10 (pg. 54) lists the number of schools to which each STO provided scholarships and the average scholarship the STO paid out. Note that the STO average scholarship calculation will include double counting if a student attends two different private schools during the year and an STO awards the student scholarships to both schools. The information on the number of schools to which each STO paid scholarships is aggregated in the following table. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 7

# of Private Schools # of STOs giving to this number of private schools 1 3 2 6 3 10 4-5 4 6-10 9 11-25 6 26-40 4 41-99 4 100 or more 4 As shown, three STOs gave scholarships to only one private school. When verifying an STO s compliance with the statutory requirement to not limit scholarships to only one school, both the original and switcher scholarship programs are reviewed together. Based on information provided by the STOs they are not considered in violation of statute at this time. STOs provided original individual scholarships and grants to 338 private schools throughout Arizona. One private school, Northwest Christian School, received scholarships or grants from 15 STOs. The following table shows the number of STOs contributing scholarship money to the private schools. In other words, referring to the table below, 114 private schools received scholarship money from one STO. This many private schools received scholarships or grants from This many STOs 114 One STO 65 Two STOs 42 Three STOs 31 Four STOs 15 Five STOs 18 Six STOs 13 Seven STOs 15 Eight STOs 8 Nine STOs 5 Ten STOs 5 Eleven STOs 1 Twelve STOs 3 Thirteen STOs 2 Fourteen STOs 1 Fifteen STOs Nine private schools received more than $1 million in scholarships from the original individual donation program in total. The most scholarship money received by one private school from all Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 8

STOs was $1.9 million for 1,101 scholarships to Northwest Christian School. Appendix 11 (pg. 56) lists the private schools that received scholarship money from each of the four donation programs in FY2015 and the overall average scholarship amount. The smallest average scholarship paid by an STO to a private school was $42 paid by Arizona Scholarship Fund to Payson Community Christian School in Payson. Seven private schools received average scholarships from individual STOs for more than $10,000. The highest average scholarship paid by an STO to one private school was $17,389 paid by Catholic Education Arizona to Blessed Sacrament Kindergarten. The following table presents the distribution of original individual average scholarships received by the private schools. For example, the average scholarship received by four private schools (from all STOs) was between $50 and $250. Five private schools received scholarships from all STOs that were on average greater than $10,000. Avg. Scholarship Range # of Private Schools with Avg. in this Range Avg. Scholarship Range # of Private Schools with Avg. in this Range $50 - $250 4 $2,501 - $3,000 33 $251 - $500 13 $3,001 - $4,000 29 $501 - $1,000 46 $4,001 - $5,000 23 $1,001 - $1,500 74 $5,001 - $7,500 4 $1,501 - $2,000 61 $7,501 - $10,000 6 $2,001 - $2,500 40 $10,001 - $14,006 5 STOs also reserved scholarships for specific students for future years. Twenty STOs reserved an additional $15.9 million in the original individual donation program. Institute for Better Education reported in FY2015 reserving the largest amount of original individual donations for future year scholarships of $6.9 million or 43.5% of the total. It should be noted that a portion of the reserved future year awards are for scholarships to be awarded in the upcoming academic year. Appendix 5 (pg. 37) shows reserved scholarships by school by scholarship program as reported in FY2015. The STOs reserving the scholarships and the amounts reserved are shown in Appendix 8 (pg. 50). All STOs certified to collect individual donations in FY2015 were evaluated as to their status in relation to the requirement that 90% of all revenue must be paid out in scholarships. From an administrative viewpoint, no STO is expected to pay out 90% of donations it receives in the current year for scholarships the same year. There will always be a lag between revenue received and revenue paid out and it does not mean that an STO with a percentage of less than 90% is in violation of the law. The 90% requirement is evaluated using two different methods: 1) a review of total donations and scholarships over the life of the STO and 2) calculating 90% of credit donations received in a particular fiscal year and tracking the amount to be awarded within the following two fiscal years. Percentages calculated based on total donations and scholarships for STOs certified to receive individual donations in FY2015 are shown in the following table. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 9

School Tuition Organization Ratio School Tuition Organization Ratio Alumnus School Tuition Organization 0.0 Dynamite Montessori Foundation 94.1 Arizona Adventist 96.4 Education Liberty Fund 0.0 Arizona Christian School Tuition Organization 91.8 Financial Assistance for Independent Schools 88.9 Arizona Community Foundation STO 16.7 Funds for Kids 70.9 Arizona Education and Scholarship Opportunity Program 53.2 HELP Scholarship Foundation. 95.1 Arizona Education First 0.0 Higher Education STO 85.2 Arizona Education Scholarship Foundation 78.8 Institute for Better Education 90.9 Arizona Episcopal Schools Foundation 89.2 Jewish Education Tax Credit Organization 85.0 Arizona Independent Schools Scholarship Foundation 94.1 Jewish Tuition Organization 94.3 Arizona International Academy Scholarship Fund 83.4 Life Development Institute Education Fund 99.4 Arizona Lutheran Scholarship Organization 94.5 Lutheran Education Foundation 94.6 Arizona Private Education Scholarship Fund 88.0 Montessori Scholarship Organization 96.7 Arizona Scholarship Fund 86.1 Northern Arizona Christian School Scholarship Fund 84.0 Arizona School Choice Trust 100.5 Orme Primavera Schools Foundation 90.0 Arizona Tax Credit 74.7 Pappas Kids Schoolhouse Foundation 87.2 Arizona Tuition Connection 87.5 Pinetop Tuition Support Organization 91.1 Arizona Tuition Organization 92.7 for Education Excellence Foundation 100.0 Arizona Waldorf Scholarship Foundation 87.4 School Choice Arizona 76.9 Arizona's Catholic Tuition Support Organization 94.1 School Tuition Association of Yuma 90.5 BEST Student Fund 96.3 Schools With Heart Foundation 90.7 Brophy Community Foundation 91.2 Shepherd of the Desert Education Foundation 95.8 Catholic Education Arizona 91.3 Southern Arizona Foundation for Education 98.4 Chabad Tuition Organization 89.9 Tuition Organization for Private Schools 89.1 Christ Lutheran School Tuition Organization 92.8 Valley Lutheran Scholarship Organization 96.2 Christian Scholarship Foundation 90.2 White Mountain Tuition Support Foundation 92.4 Christian Scholarship Fund of Arizona 90.4 Yuma s Education Scholarship Fund for Kids 98.1 Cochise Christian School Tuition Organization 98.1 Five STOs have very low percentages because they are newer STOs; their scholarships should increase significantly within the next year or two. One STO has a percentage greater than 100% because scholarships were paid from revenue that was not tax credit donations or due to reserved scholarships for specific students in future years. These percentages are being monitored annually and if STOs with low percentages do not improve, ADOR will review that program to determine the reason. Based on the yearly 90% calculation, there are currently no STOs in violation of the 90% requirement. STOs can allow individual donors to make recommendations when donating (although Arizona law prohibits STOs from awarding scholarships solely on the basis of donor recommendations). Only those STOs that have a CPA review are required to report if they accept recommendations. In FY2015, 21 STOs reported allowing donors to recommend specific students for scholarships when donating. For those STOs that allowed donor recommendations and for whom information was available, approximately 51% of their original individual donations had recommendations. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 10

SWITCHER INDIVIDUAL INCOME TAX CREDIT PROGRAM Arizona allows a second individual income tax credit for individuals wishing to give more than the amount allowed for an individual income tax credit under the original individual income tax credit program. The switcher individual income tax credit for contributions to school tuition organizations is governed by A.R.S. 43-1089.03 and Chapter 16 in Title 43. After donating $528 or $1,056 for the original individual income tax credit, individuals could donate up to an additional $525 or $1,050 (depending on filing status) in tax year 2014 and take this additional credit. Additional amounts that could be donated in tax year 2014 increased to $532 and $1,064. The maximum credit amounts are adjusted each year for inflation. The following table provides a summary of the change in the maximum switcher individual credit donation amount. Tax Year Single Filers Married Filing Joint Filers 2012 $500 $1,000 2013 $514 $1,028 2014 $525 $1,050 2015 $532 $1,064 All 52 STOs receiving donations under the original individual income tax credit program also received switcher credit donations in FY2015. A total of $30.8 million was received under this donation program from 37,676 taxpayers was reported for the fiscal year. The following table shows the number of STOs collecting donations in each period, the number of donations and the amount of tax credit donations. Percent change is calculated for prior year amounts reported. Time Period # of STOs # of Amount % change FY2012 7 34 $23,975 FY2013 48 25,713 $19,891,765 NA FY2014 49 32,460 $26,060,133 31.0 FY2015 52 37,676 $30,750,957 18.0 Appendix 12 (pg. 68) shows the number and amount of donations received and the number and amount of scholarships awarded by each STO for FY2015. Arizona Christian School Tuition Organization received the most switcher donations in FY2015 of $5.7 million, or 18.6% of total switcher donations. Fifty STOs paid out $24.7 million in scholarships from switcher donations in FY2015, a 40.5% increase over FY2014. The following table shows the number of STOs providing scholarships in each period, the number of scholarships and the amount of scholarships paid. Please note that the number of scholarships paid does not equate to the number of students receiving scholarships. Many families seek scholarships from multiple STOs, resulting in one child being counted several times in the scholarship counts. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 11

Time Period # of STOs # of Amount % change FY2013 36 4,473 $4,681,192 FY2014 46 13,261 $17,561,453 275.1 FY2015 52 16,493 $24,667,347 40.5 Appendix 12 (pg. 68) also shows the switcher scholarships awarded by each STO for FY2015. The 50 STOs that paid switcher scholarships in FY2015 reported 16,493 scholarships for an average of $1,496. The two STOs that did not pay scholarships in FY2015 were newly certified during the fiscal year. Arizona Christian School Tuition Organization paid the highest total amount of scholarships ($4.8 million or 19.4% of the total) and Catholic Education Arizona awarded the largest number of scholarships (3,487 scholarships or 21.1% of the total). STOs are required to report the percentage of scholarship dollars that go to families with income of 185% or less of poverty level and the percentage of scholarship dollars that go to families with income ranging from about 185% of poverty level to 342.25% of poverty level, as they are required to do for the original individual donation program. The income levels for FY2015 that fit into these ranges are shown on page 7. Across all STOs that paid switcher scholarships, 40.8% went to children in families with income up to 185% of poverty level. Children in families with income between 185% and 342.25% of poverty level received 36.7% of the scholarship money. The remaining 22.5% of scholarship money went to children in families with income greater than 342.25% of poverty level. Five organizations gave 100% of their switcher scholarships to children in families with income of 185% or less of poverty level. An additional five organizations gave 100% of their scholarships to children in families with income of 342.25% or less of poverty level. There were five organizations gave more than 50% of their switcher scholarships to children of families with income greater than 325.25% of poverty level. Appendix 13 (pg. 70) shows the percentages for each STO. The range of overall average switcher scholarship amounts paid by STOs is from $486 (Christian Scholarship Foundation) to $9,444 (Chabad Tuition Organization). Average scholarship ranges and the number of STOs with scholarships falling in each range is shown in the following table. Avg. Scholarship Range # of STOs Avg. Scholarship Range # of STOs $486 to $1,000 7 $2,501 - $3,000 2 $1,001 - $1,500 14 $3,001 - $4,000 4 $1,501 - $2,000 12 $4,001 - $5,000 2 $2,001 - $2,500 4 $5,001 - $9,444 5 Institute for Better Education provided switcher scholarships to 153 schools, more than any other STO. Appendix 14 (pg. 72) lists the number of schools to which each STO provided scholarships and the average scholarship the STO paid out. Note that the STO average scholarship calculation will include double counting if a student attends two different private schools during the year and an STO awards the student scholarships to both schools. The Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 12

information on the number of schools to which each STO paid scholarships is aggregated below. # of Private Schools # of STOs giving to this number of private schools 1 8 2 9 3 5 4 3 5-10 9 11-20 6 21-30 2 26-99 5 100 or more 3 As shown, eight STOs gave scholarships to only one private school. When verifying an STO s compliance with the statutory requirement to not limit scholarships to only one school, both the original and switcher scholarship programs are reviewed together. Based on information provided by the STOs they are not considered in violation of statute at this time. STOs provided switcher scholarships and grants to 317 private schools throughout Arizona. Six private schools received switcher scholarships or grants from 10 or more STOs. The following table shows the number of STOs contributing scholarship money to the private schools. In other words, referring to the table below, 112 private schools received scholarship money from one STO. This many private schools received scholarships or grants from This many STOs 112 One STO 63 Two STOs 47 Three STOs 23 Four STOs 19 Five STOs 21 Six STOs 10 Seven STOs 9 Eight STOs 7 Nine STOs 1 Ten STOs 4 Eleven STOs 1 Twelve STOs Nine private schools received more than $500,000 in scholarships from the switcher donation program in total. The most scholarship money received by one private school from all STOs was $0.8 million for 531 scholarships to Northwest Christian School. Appendix 11 (pg. 56) lists the private schools that received scholarship money from each of the four donation programs and the overall average scholarship amount. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 13

The smallest average switcher scholarship paid by an STO to a private school was a $5 scholarship to Our Lady of the Mountain (All Saints), Phoenix Christian School K-8 and Thunderbird Christian Elementary School paid by Institute for Better Education. Four private schools received average scholarships from individual STOs for more than $10,000. The highest average scholarship paid by an STO to one private school was $20,035 paid by Tuition Organization for Private Schools to ACCEL. The following table presents the distribution of switcher average scholarships received by the private schools. For example, the average scholarship received by 12 private schools (from all STOs) was between $26 and $250. Three private schools received an average aggregate scholarship from all STOs that was greater than $10,000. Avg. Scholarship Range # of Private Schools with Avg. in this Range Avg. Scholarship Range # of Private Schools with Avg. in this Range $26 - $250 12 $2,501 - $3,000 12 $251 - $500 26 $3,001 - $4,000 25 $501 - $1,000 80 $4,001 - $5,000 7 $1,001 - $1,500 64 $5,001 - $7,500 7 $1,501 - $2,000 48 $7,501 - $10,000 5 $2,001 - $2,500 28 $10,001 - $20,035 3 STOs also reserved scholarships for specific students for future years. Twenty-one STOs reserved an additional $6.3 million in the switcher donation program. Arizona s Catholic Tuition Support Organization reported in FY2015 reserving the largest amount of switcher donations for future year scholarships of $2.1 million or 33.3% of the total. Appendix 5 (pg. 37) shows reserved scholarships by school by scholarship program as reported in FY2015. The STOs reserving the scholarships and the amounts reserved are shown in Appendix 12 (pg. 68). All STOs certified to collect individual donations in FY2015 were evaluated as to their status in relation to the requirement that 90% of all revenue must be paid out in scholarships. From an administrative viewpoint, no STO is expected to pay out 90% of donations it receives in the current year for scholarships the same year. There will always be a lag between revenue received and revenue paid out and it does not mean that an STO with a percentage of less than 90% is in violation of the law. The 90% requirement is evaluated using two different methods: 1) a review of total donations and scholarships over the life of the STO and 2) calculating 90% of credit donations received in a particular fiscal year and tracking the amount to be awarded within the following two fiscal years. Percentages calculated based on total donations and scholarships for STOs certified to receive individual donations in FY2015 are shown below. School Tuition Organization Ratio School Tuition Organization Ratio Alumnus School Tuition Organization 0.0 Arizona Episcopal Schools Foundation 61.6 Arizona Adventist 81.9 Arizona Independent Schools Scholarship Foundation 90.6 Arizona Christian School Tuition Organization 78.8 Arizona International Academy Scholarship Fund 85.2 Arizona Community Foundation STO 18.5 Arizona Lutheran Scholarship Organization 73.1 Arizona Education and Scholarship Opportunity Program 10.3 Arizona Private Education Scholarship Fund 82.2 Arizona Education First 0.0 Arizona Scholarship Fund 63.3 Arizona Education Scholarship Foundation 45.5 Arizona School Choice Trust 16.5 Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 14

School Tuition Organization Ratio School Tuition Organization Ratio Arizona Tax Credit 60.6 Jewish Education Tax Credit Organization 67.3 Arizona Tuition Connection 64.6 Jewish Tuition Organization 57.3 Arizona Tuition Organization 84.6 Life Development Institute Education Fund 40.3 Arizona Waldorf Scholarship Foundation 49.2 Lutheran Education Foundation 98.3 Arizona's Catholic Tuition Support Organization 87.9 Montessori Scholarship Organization 74.2 BEST Student Fund 70.4 Northern Arizona Christian School Scholarship Fund 56.6 Brophy Community Foundation 85.1 Orme Primavera Schools Foundation 92.1 Catholic Education Arizona 56.0 Pappas Kids Schoolhouse Foundation 92.2 Chabad Tuition Organization 89.9 Pinetop Tuition Support Organization 27.6 Christ Lutheran School Tuition Organization 70.3 for Education Excellence Foundation 69.0 Christian Scholarship Foundation 57.6 School Choice Arizona 72.0 Christian Scholarship Fund of Arizona 54.7 School Tuition Association of Yuma 90.1 Cochise Christian School Tuition Organization 98.4 Schools With Heart Foundation 83.4 Dynamite Montessori Foundation 110.5 Shepherd of the Desert Education Foundation 94.0 Financial Assistance for Independent Schools 81.9 Southern Arizona Foundation for Education 64.8 Funds for Kids 79.3 Tuition Organization for Private Schools 56.8 HELP Scholarship Foundation. 91.3 Valley Lutheran Scholarship Organization 65.8 Higher Education STO 86.7 White Mountain Tuition Support Foundation 81.5 Institute for Better Education 39.6 Yuma s Education Scholarship Fund for Kids 80.8 Several STOs have very low percentages because they are newer STOs or new to the switcher program; their scholarships should increase significantly within the next year or two. One STO has a percentage greater than 100% because scholarships were paid from revenue that was not tax credit donations or due to reserved scholarships for specific students in future years. These percentages are being monitored annually and if STOs with low percentages do not improve, ADOR will review that program to determine the reason. Based on the data provided in the FY2015 annual reports one STO, Arizona School Choice Trust, was notified of failing to award the required 90% within two fiscal years. Pursuant to statute the STO was given 90 days from notification to meet the statutory requirement and show that the remaining amount had been awarded within the 90 day period. STOs can allow individual donors to make recommendations when donating (although Arizona law prohibits STOs from awarding scholarships solely on the basis of donor recommendations). Only those STOs that have a CPA review are required to report if they accept recommendations. In FY2015, 20 STOs reported allowing donors to recommend specific students for scholarships when donating. For those STOs that allowed donor recommendations and for whom information was available, approximately 56% of their switcher donations had recommendations. CORPORATE INCOME TAX OR INSURANCE PREMIUM TAX CREDIT PROGRAM SCHOLARSHIPS FOR LOW-INCOME STUDENTS The low-income student corporate income tax credit and insurance premium tax credit for contributions to school tuition organizations are governed by A.R.S. 43-1183, A.R.S. 20-224.06 and Chapter 15 in Title 43. There were 54 STOs certified to receive corporate donations during FY2015. to STOs for the purpose of receiving the low-income student corporate income tax credit or insurance premium tax credit are limited by statute for each fiscal year. For FY2007, Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 15

the first year of the program, the limitation was $10 million. This limitation increases by 20% per year. In FY2015, the limitation was $42,998,170. The following table shows the amount approved and the number of corporate donation approvals in each fiscal year as opposed to the amount received. Fiscal Year Statutory Limitation # of Corps $ Approved 11 $ Received 2007 $10,000,000 108 $9,740,800 $9,535,800 2008 $12,000,000 73 $12,116,000 $11,996,000 2009 $14,400,000 98 $10,816,006 $10,495,506 2010 $17,280,000 63 $8,121,508 $8,100,008 2011 $20,736,000 69 $11,376,351 $11,324,351 2012 $24,883,200 84 $19,587,037 $19,035,987 2013 $29,859,840 118 $30,041,114 $29,858,865 2014 $35,831,808 100 $36,571,808 $35,831,808 2015 $42,998,170 97 $43,983,170 $42,998,170 There were 174 donations approved and 165 donations received in FY2015 for the low-income student corporate/insurance premium credit. The 165 donations received came from 95 corporations. Thirty-six of the 95 corporations were insurance companies donating $16.4 million. Of the 95 corporations, 66 donated once; the remaining 29 donated from two to nine times. The range of donation size by corporation made to an STO is shown in the following table. As shown, 9 corporations made donations of over $1 million. There may have been several donations to several STOs, but these numbers aggregate a corporation s donations in the fiscal year. Donation Size # Donation Size # $5,000 or less 4 $50,001 to $100,000 13 $5,001 to $10,000 8 $100,001 to $250,000 18 $10,001 to $20,000 6 $250,001 to $500,000 11 $20,001 to $25,000 4 $500,001 to $1,000,000 10 $25,001 to $50,000 12 $1,000,001 and over 9 Appendix 15 (pg. 74) shows the number and amount of donations received by each STO in FY2015. Of the 54 STOs certified to receive corporate donations in FY2015, 27 received donations of $43.0 million in FY2015. AAA Scholarship Foundation received the most lowincome corporate donations in FY2015 of $11.1 million or 25.8% of the total. Unlike scholarships from individual income tax credit donations, low-income student corporate income tax and insurance premium tax credit scholarships under this program are restricted to certain students. Recipients of these corporate scholarships must meet specific income limits plus other requirements. (More information can be found at www.azdor.gov.) Additionally, the amount of scholarship that can be awarded is limited. For the 2014-2015 academic year, no 11 Represents the total amount of donations approved. This amount may be higher than the credit limitation due to corporations donating less than the approved amount and therefore additional donation requests are processed. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 16

more than $5,000 could be awarded to students in kindergarten through grade 8 and no more than $6,300 could be awarded to students in grades 9 through 12. Twenty-seven STOs paid $31.4 million in low-income scholarships in FY2015, a 29.7% increase over FY2014. The following table shows the number of STOs providing scholarships in each period, the number of scholarships and the amount of scholarships paid. No percent change is calculated for FY2011 as this was the first fiscal year reporting period. Please note that the number of scholarships paid does not equate to the number of students receiving scholarships. Many families seek scholarships from multiple STOs, resulting in one child being counted several times in the scholarship counts. Time Period # of STOs # of Amount % change CY2006 3 35 $49,380 CY2007 18 1,940 $4,597,823 NA CY2008 19 2,979 $7,615,639 65.6 CY2009 19 3,640 $7,849,824 3.1 CY2010 18 4,226 $9,259,078 18.0 FY2011 20 5,559 $9,030,739 12 FY2012 21 5,828 $11,294,842 25.1 FY2013 26 11,096 $17,556,127 55.4 FY2014 25 12,975 $24,167,516 37.7 FY2015 27 16,573 $31,355,396 29.7 Appendix 15 (pg. 74) also shows the scholarships awarded by each STO in FY2015. The 27 STOs reported paying 16,573 scholarships for an average of $1,892. Arizona Leadership Foundation paid the highest amount of scholarships ($8.6 million or 27.4% of the total). Catholic Education Arizona awarded the largest number of scholarships (3,860 scholarships or 23.3% of the total). Low-income corporate scholarships are to be awarded to families with income less than 342.25% of poverty level. STOs are required to report the percentage of scholarship dollars that go to families with income of 185% or less of the poverty level and the percentage of scholarship dollars that go to families with income ranging from above 185% of poverty level to 342.25% of poverty level. The income levels for FY2015 that fit into these ranges are shown on page 7. Across all STOs, 62.1% of the low-income corporate scholarship money went to children in families with income up to 185% of poverty level. Children in families with income between 185% and 342.25% of poverty level received the remaining 37.9% of the scholarship money. Four organizations gave 100% of their original scholarships to children in families with income of 185% or less of poverty level. Appendix 16 (pg. 75) shows the percentages for each STO. 12 There are 6 months that overlap between Calendar Year 2010 and Fiscal Year 2011. Some of the scholarships showing for Fiscal Year 2011 are already shown for Calendar Year 2010. Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 17

Arizona Leadership Foundation provided low-income scholarships to 112 schools, more than any other STO. Foundation for Corporate Tax Credit had the highest overall average scholarship of $5,352. Appendix 17 (pg. 76) lists the number of schools to which each STO provided scholarships and the average scholarship the STO paid out. Note that the STO average scholarship calculation will include double counting if a student attends two different private schools during the year and an STO awards the student scholarships to both schools. The information on the number of schools to which each STO paid scholarships is aggregated below. # of Private Schools # of STOs giving to this number of private schools 1 2 2 5 3 2 4 1 5-10 5 11-25 1 26-50 6 51-99 3 100 or more 2 As shown, two STOs gave low-income corporate scholarships to only one private school. When verifying an STO s compliance with the statutory requirement to not limit scholarships to only one school, both the low-income and disabled/displaced corporate scholarship programs are reviewed together. Based on information provided by the STOs they are not considered in violation of statute at this time. Corporate scholarship money went to 237 schools in FY2015. Three private schools, Bourgade Catholic High School, Cornerstone Christian Academy/Pusch Ridge, and Xavier College Preparatory, received scholarships from ten STOs. The following table shows the number of STOs contributing scholarship money to the private schools. In other words, 86 private schools received scholarship money from one STO. This many private schools received scholarships or grants from This many STOs 86 One STO 39 Two STOs 30 Three STOs 16 Four STOs 25 Five STOs 14 Six STOs 16 Seven STOs 5 Eight STOs 3 Nine STOs 3 Ten STOs Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 18

Five private schools received more than $1 million in scholarships from the low-income corporate donation program in total. The most scholarship money received by one private school from all STOs was $1.8 million for 706 scholarships to St. Mary s High School. Appendix 11 (pg. 56) lists the private schools that received scholarship money from each of the four donation programs and the overall average scholarship amount. The smallest average low-income scholarship paid by an STO to a private school was a $5 scholarship to Blessed Sacrament Kindergarten paid by Catholic Education Arizona and to Chandler Christian Academy and St. John Vianney Catholic School by Institute for Better Education. Several private schools will show a calculated average scholarship from an individual STO that is greater than the $6,300 low-income scholarship cap. Due to current reporting requirements, the annual scholarship data reported by the STOs contains scholarships paid during the fiscal year which may include scholarships for both the 14/15 and the 15/16 academic years. Since the net number of scholarships reported are by student and do not account for two academic years, the calculated average is distorted. Based on the data provided by the STOs, there were no scholarships awarded greater than the statutory cap. STOs also reserved scholarships for specific students for future years. Fifteen STOs reserved an additional $32.0 million in the low-income corporate donation program. AAA Scholarship Foundation reported in FY2015 reserving the largest amount of low-income corporate donations for future year scholarships of $14.1 million or 44.1% of the total. Appendix 5 (pg. 37) shows reserved scholarships by school by scholarship program as reported in FY2015. The STOs reserving the scholarships and the amounts reserved are shown in Appendix 15 (pg. 74). All STOs certified to collect corporate donations in FY2015 were evaluated on their status in relation to the requirement that 90% of all revenue must be paid out in scholarships. From an administrative viewpoint, no STO is expected to pay out in scholarships 90% of donations it receives in the current year. There will always be a lag between revenue received and revenue paid out and it does not mean that an STO with a percentage of less than 90% is in violation of the law. Some STO ratios are very low because they are still in the early stages of participation in the program. The 90% requirement is evaluated using two different methods: 1) a review of total donations and scholarships over the life of the STO and 2) calculating 90% of credit donations received in a particular fiscal year and tracking the amount to be awarded within the following two fiscal years. Percentages calculated based on total donations and scholarships for STOs certified to receive low-income corporate donations in FY2015 are shown in the following table. School Tuition Organization Ratio School Tuition Organization Ratio AAA Scholarship Foundation 86.2 Arizona School Choice Trust 74.1 Arizona Adventist 90.9 Arizona Waldorf Scholarship Foundation 54.6 Arizona's Catholic Tuition Support Organization 87.8 Arizona Community Foundation STO 43.1 Arizona Education and Scholarship Opportunity Program 49.9 Brophy Community Foundation 106.8 Arizona Episcopal Schools Foundation 86.2 Catholic Education Arizona 80.3 Arizona Independent Schools Scholarship Foundation 78.3 Christian Scholarship Foundation 78.1 Arizona Leadership Foundation 74.2 Corporate Tax Foundation 73.1 Arizona Private Education Scholarship Fund 92.1 Financial Assistance for Independent Schools 65.7 Arizona Scholarship Fund 86.2 Foundation for Corporate Tax Credits 92.1 Arizona Department of Revenue, Office of Economic Research & Analysis, July 2016 Page 19