August 20, 2015

Inside The Reporter’s Notebook: How The Gazette Dug Into High State Tax Credit For Private Schools

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Some Iowa lawmakers say they are concerned about the amount of money private schools receive in Iowa, and a high state tax credit that is given to Student Tuition Organization donors.

Donors to Student Tuition Organizations are eligible for a tax credit of 65 percent of their total contribution. This is one of the highest tax credits on Iowa’s books, according to investigative reporter Erin Jordan of The Gazette, of Cedar Rapids.

Jordan recently published an investigative article that highlights the pros and cons of Student Tuition Organizations, and concern by some about the state giving out such a generous tax credit when Gov. Terry Branstad has vetoed supplemental state funding for public schools.

School Tuition Organizations were established by the 2006 Iowa Legislature. They are charitable organizations that raise financial aid for private K-12 schools. Many families benefit from Student Tuition Organizations money and the organization has helped stabilize enrollment at Iowa’s private K-12 schools.

In an interview with IowaWatch, Jordan discusses the premise behind the investigation and her hopes for raising awareness and knowledge about Student Tuition Organizations within the Iowan community.

A periodic IowaWatch feature that takes you behind the scenes of Iowa's best investigative reporting.

Lauren Mills/IowaWatch

A periodic IowaWatch feature that takes you behind the scenes of Iowa’s best investigative reporting.

ERIN JORDAN: We decided to take a look at this because I got a tip from someone a little bit about these organizations and this person had heard from a lawmaker who was concerned that school tuition organizations were being used by private schools to recruit promising athletes. So that was the idea that I wanted to pursue initially. But I had never heard of school tuition organizations and I really wanted to learn more about it.

CLARE MCCARTHY: So it that was initiated your investigation into this piece? Is that where you began?

JORDAN: Yeah, that’s where I began. And you know, the Iowa Department of Revenue administers this program so the way I got started is I contacted the Department of Revenue and just got some information about the school tuition organizations that exist in Iowa. And I am just going down the list to make sure—I think it’s eleven or twelve…there’s twelve school tuition organizations around the state. And what they do—they have to represent at least two private schools, and these can be religious schools, some of them don’t have a religious basis, but the bulk of them are Catholic schools. There’s also some Lutheran schools and some other secular institutions.

MCCARTHY: Okay. And do you know who benefits from this program?

JORDAN: I do. A lot of students and their families benefit from school tuition organizations. The way it works is individuals or corporations can make donations of any size to a school tuition organization. For example, there is the Catholic tuition organization that is kind of based in the Diocese of Des Moines. So you can make a donation—say I donate $1000 to that STO—the group there uses that money—has to use at least 90 percent of that money, often they use a greater percentage than that—to provide scholarships to low-income families. So those families can choose to go to one of the Catholic schools in that Diocese. So a lot of families who would like to have a private education for their kids but maybe couldn’t afford the full tuition on their own are getting some assistance here.

MCCARTHY: Right, okay. How did you begin researching for this story, other than going to the Iowa Department of Revenue? Where did you start?

JORDAN: Right, well the data was the beginning for me. Kind of looking at these numbers and seeing what we’re talking about. I also looked at the history of this program. It originated in the Legislature in 2006, and at that point in time, the state made available $2.5 million to fund tax credits, if people donate to this. So I looked at the history, looked at the lawmakers who initially supported it, you know did some work there. And I’ve made a lot of phone calls to some of these STO leaders to find out about who’s benefiting, how did they administer their program. So it’s been a combination of data, journalism, and then also talking with people.

MCCARTHY: … Do you know how much money was donated in the past year to STO’s?

Erin Jordan, The Gazette (Cedar Rapids, IA) investigative reporter

Clare McCarthy/IowaWatch

Erin Jordan, The Gazette (Cedar Rapids, IA) investigative reporter

JORDAN: I do. In 2014, nearly $18.5 million was donated by individuals and corporations. And that money is kind of capped at that amount because that utilized the full 12 million dollars of tax credits available. You know, people can still donate to it but they’re not going to get a tax credit past that 12 million cap. So, you know, the programs are kind of limited there. And each STO gets an allocation of the tax credits based on their enrollment, so some of them are bigger, some of them are smaller, that sort of thing.

MCCARTHY: Okay, so you said that donors to STO’s receive a 65 percent tax credit and that Iowa pays for those tax credits. Do you know why that amount has increased over the years?

JORDAN: Right, well the 65 percent was set in 2006, and that has remained steady. But it is the largest tax credit on the books in the state of Iowa, by a long shot. So it’s kind of a signal, at least to some degree, how the Legislature felt about it at that point in time. But what has changed over the years is the maximum amount of tax credits available. When they started out in 2006, there was $2.5 million available. It increased then to 5, and then I think 7.5, 8.75—and now for the last couple of years, it’s been 12 million. So it’s increased more than four-fold since the beginning.

MCCARTHY: Right. And the Iowa Department of Revenue, who hands out the tax credits, does not verify whether scholarship recipients are no more than 300 percent of the federal poverty level?

JORDAN: That’s right. I think that that’s one of our findings with this investigation is that although that is a requirement that’s laid out in Iowa code—that this money, these scholarships not be given to anyone who is above that 300 percent of federal poverty—which is a family income of about $72,000 a year. So there’s not supposed to be anyone above that getting the money. And a lot of the STO’s that I talked with do a very vigorous verification process, they require the families to submit their tax forms, that sort of thing. But the state, who oversees this program, is not verifying that. It’s not verifying that data. So they’re trusting the STO’s to do it properly. And at least one lawmaker I talked with said there needs to be more accountability there.

MCCARTHY: Right. Did you talk to anyone at the Iowa Department of Revenue and was it difficult to get to speak to them about it?

JORDAN: It was not, I did talk to a couple of individuals there—both Victoria Daniels and Teresa DeVorak, and they were both helpful. Um, I think they just pretty much believe that, you know, the law doesn’t require them specifically to verify this information, so they believe they are in compliance with Iowa code.

MCCARTHY: Right. How did you decide whom to interview for this piece, other than the people you mentioned?

JORDAN: Right, well I really wanted to talk with the STO’s that are in our coverage area. The largest STO is called “Our Faith, Our Children, Our Future,” which is out of Dubuque, and that is for every school within the Dubuque arch-Diocese of the Catholic church. So they receive the largest amount of tax credits—they got $3.56 million of the $12 million available. The next biggest one was out of Des Moines at $2.1 million. So I talked with the Dubuque Diocese’s STO, I also talked with Des Moines, I talked with the Davenport Diocese, and then there is one that oversees kind of Iowa City and some of the other Catholic schools. But I also wanted to talk with some non-Catholic ones. I talked with the Iowa Independence School Tuition Organization, which is based in Fairfield, so they work with some schools in our area too—Iowa Mennonite, Scatter Good, Maharishi School Age of Enlightenment, and another school in Des Moines. So, you know, they all do things a little bit differently so I learned a lot about the organization by talking with them. And I really wanted to talk with a family because I think it’s important to show from a family’s perspective how important this money is for them.

MCCARTHY: Right, interesting. Do you think enough people know about this system of donor ship and the tax credit donors are receiving?

JORDAN: Well, I think the people who are connected with parochial and other private schools know about it. I think it’s publicized there pretty substantially. I think in certain pockets, you know, CPA’s and other tax advisors tell people that this is a good way to perhaps make a donation—not only do you get the 65 percent tax credit, but you also get federal deductibility, so depending what income bracket you’re in, it could be nearly awash for this sort of donation. So I think it depends what circles you run in, how familiar people are with this program.

MCCARTHY: Right. Do you think this is an ever more relevant topic now that (Gov.) Branstad vetoed supplemental state funding for K-12 public schools? Why is that?

JORDAN: I do think it is particularly relevant now and the lawmakers I’ve talked with think it is as well. I talked with Senator Bob Dvorsky from Coralville, who said that, you know, at a time when we can’t even fully fund the public schools, it’s not a time to be thinking of increasing benefits to private schools. He believes we have some of the most generous benefits to private school families in the nation. Uh, you know, and I think the organizers for STO’s agree that as long as public schools aren’t getting more funding, they’re not going to be getting more funding. But they want to increase this cap, they want to increase it to $5 million for tax credits. They also are pushing for educational savings accounts, which are used in some other states, which would further divert money from public education. So, I think that those two issues are tied, whether people like to think about that or not.

MCCARTHY: Right. What do you hope this story will point out to the public?

JORDAN: I would like people to just be more aware of how our state spends our money and you know, make sure they understand the pros and cons of it. And if everyone agrees with it, then that’s great! But if they don’t, at least it gives them more knowledge, you know the whole idea: knowledge is power.

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