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A case to be argued Wednesday before the U.S. Supreme Court could settle once and for all the legal bounds of Arizona's private-school tuition tax-credit program.
More than setting a school-choice precedent, however, the case could also shape the rights of taxpayers to sue the government over policies they dislike that involve separation of church and state.
The case is a decade-old federal lawsuit challenging the Arizona tax credits, which encourage donations to non-profits that distribute private-school scholarships.
The issue surrounding the program itself is whether it violates the constitutional separation of church and state. Nearly all the scholarship dollars go to students at religious schools, and many of the non-profits, which select the students, have a religious mission.
The right-to-sue issue is more likely to be the main focus of attention for the justices because the Supreme Court already has endorsed a private-school voucher program, in Cleveland, that allows parents to spend state money on private religious or secular schools.
Paul Bender, an Arizona State University law professor who represents groups that are challenging the tax credits, worries that, by accepting this case after he won before the 9th U.S. Circuit Court of Appeals, the Supreme Court is poised to rule that his clients had no right to sue in the first place.
Such a ruling could embolden states to enact a new array of tax credits that would indirectly benefit religious institutions, he said.
Michael W. McConnell, a retired federal appeals judge and director of the Constitutional Law Center at Stanford University, said it seems "overwhelmingly likely" that the pivotal issue will be whether taxpayers have the right, or the "standing," to sue the government in cases involving church-state separation.
The issue has divided the court in recent years, and the legal guidelines remain murky, he said. The Arizona case could add some clarity.
Meanwhile, the court is unlikely to upend its 2002 ruling allowing school vouchers, which essentially ended debate over school choice, McConnell said.
"My guess is they may not even get to the merits (of the tax-credit program)," McConnell said.
Arizona's program
Arizona's program began in 1997, when state lawmakers passed a system that allows taxpayers to claim a dollar-for-dollar credit of up to $1,000 for married couples off their state income taxes for contributions to non-profits known as school-tuition organizations.
By law, these organizations, or STOs, must spend at least 90 percent of contributions on scholarships and must offer them to students at more than one school.
Other states, like Florida, have since created similar tax-credit programs, although only Georgia also allows religious organizations to award scholarships, Bender said.
The Arizona program has grown steadily and was expanded to include corporate-tax credits. There are now more than 50 STOs that have taken in more than $399 million through 2009.
At least eight tuition organizations do not provide scholarships to religious schools, but they represent a small share of the money allocated. In 2008, for example, 93 percent of the $54 million in scholarships went to students attending religious schools, according to an Arizona Republic analysis of STO reports to the Arizona Department of Revenue.
Issue with tax credits
As Bender sees it, the main issue is that Arizona's tax credits steer public money to groups that award scholarships based often on religious considerations. This violates the constitutional barrier between church and state and is different from Cleveland's voucher program, he said. In that program, parents receive set amounts that they can use to pay tuition at any private school.
"The money has to be awarded to parents on a religiously neutral basis, and the parent has to have completely free choice about where to use the money," he said.
Tax-credit supporters say Arizona has enabled anyone to create scholarship funds, and the money isn't taken from unwilling taxpayers or controlled by the government.
The fact that most scholarship groups are religious-based reflects only parental demand, said Paula Bickett, who heads civil-case appeals for the Arizona attorney general and is among the lawyers defending the program.
McConnell thinks that, after upholding the voucher program, the court could easily uphold Arizona's if justices focus on the program's legal merits.
"The money involved is not from the treasury," McConnell said.
It is built on a tax credit for donations to non-profits, a concept long accepted under tax law, he said.
Plaintiffs are 4 taxpayers
The more unpredictable issue could be whether the plaintiffs have the standing to sue.
The plaintiffs are four Arizona taxpayers, represented by various law firms, including the American Civil Liberties Union. Defendants include some of the STOs, including the largest, the Arizona Christian School Tuition Organization, and the state.
"There are quite good arguments that the plaintiffs here did not have standing," McConnell said. "But it's not governed by clearly established precedent, and it would not be surprising for it to go either way."
Jay Wexler, a law professor at Boston University and author of a book on church-state history, agrees.
"The conservatives on the court are generally more and more hostile to allowing standing," he said. "On the other hand, there's Justice (Anthony) Kennedy, and we never know what he's going to do."
In most cases, taxpayers cannot claim constitutional violations over the way public money is spent. But, in a 1968 case, the court allowed such suits in matters related to the First Amendment's "establishment clause" separating church and state. That exception is the thrust of the plaintiffs' argument in the tax-credit case.
Tax-credit supporters argue that the 1968 case didn't grant every taxpayer standing to file suit, just those whose money was directly affected.
"(Such cases) require much more than taxpayers with strong feelings about the separation between church and state . . . which is all we have here," wrote lawyers for the Arizona Christian School Tuition Organization.
In recent years, the Supreme Court has narrowed that right to sue and could further address the issue in the Arizona case.
One sign that it will is the intervention of the Solicitor General's Office, the legal team for the U.S. government. The solicitor general has filed papers in the case focusing on the standing issue, and the court has granted argument time to the office as a third party, but not to one of the tuition organizations.
Kennedy, whose support is often pivotal in close decisions, figures to play a key role in this case. In 2004, he joined three conservative justices who, based on federal tax laws, preferred that the Arizona tax-credit case be handled in state court. Now-retired Justice Sandra Day O'Connor sided with four liberal justices to keep the case in federal court.
But in a 2007 case, Kennedy suggested that he is inclined to largely preserve the recognized exceptions that permit taxpayer lawsuits, Bender said.
Wexler said Kennedy seems tolerant of limited state funding to religious groups but is troubled by "coercive" conditions, such as prayer in school.
If he accepts the practice of directing money to tuition organizations, he will have to balance it against those groups' religious considerations in awarding scholarships, Wexler said.
