Ethics 101

Before Jenifer Darland showed up on the steps of the Capitol in
Phoenix, no one in the state Legislature had ever heard of the Tucson
mother. Not even her target, state Rep. Steve Yarbrough of
Chandler.

On May 18, Darland held a press conference on those steps. She
mentioned Yarbrough’s tax-credit-scholarship/grant-processing company,
and his affiliation with a Christian private-school tax-credit
organization and a sister agency that handles corporate tax
credits.

Darland pointed out that Yarbrough also happens to be a lawmaker who
regularly champions school tax-credit legislation. And that he makes
good money in his private life as a result of his work as a
lawmaker.

In the daily newspapers, Yarbrough insisted that there’s no
conflict, and that what he does is legal. The Tucson Weekly contacted Yarbrough for comment, but he did not
respond.

Darland says that what Yarbrough does probably is legal—but
it’s certainly not ethical.

She and another parent at the press conference, Lisa Hawkins, and
the organization they volunteer with, the Arizona Education Network,
are calling for an ethics investigation and a change in Arizona’s
conflict-of-interest law.

Through Darland’s extensive public-records search, she discovered
that Yarbrough, as executive director of the Arizona Christian School
Tuition Organization, received a $96,000 salary in 2007.

Yarbrough also owns HY Processing, which handles grant and
scholarship applications sent to the ACSTO. In 2007, HY Processing
received a $427,000 payment from ACSTO, which also paid Yarbrough
$44,981 in rent for a Chandler office owned by Yarbrough and his
wife.

Darland’s interest in Yarbrough was spurred by a tax-credit House
bill he’s sponsoring this year. Darland says she started her search at
the Web sites of two tax-credit organizations, School Choice Arizona
(SCA) and ACSTO.

Using what she describes as her “spidey sense,” Darland noticed that
both organizations were in Chandler. They had different telephone
numbers—but the same fax number.

Then Darland started looking into Yarbrough’s affiliations with the
organizations.

In Arizona, taxpayers may contribute to private-school
scholarships—up to $500 for individuals—through a school
tuition organization like ACSTO. The taxpayer then can claim the
donation as a tax credit.

Tax-credit donations to private schools must go through an
organization like ACSTO before going to the schools—and those
organizations are allowed to take 10 percent off the top for
administration fees.

“It stinks that 10 percent is, at the end of the day, tax dollars
(going) into the pocket of an outside administrator and not the
school,” Darland says.

Darland’s public-records search confirmed that Yarbrough is involved
in corporation-tax-credit processing through SCA. Businesses are
allowed to make donations to private-school scholarships against the
income tax they owe the state. Currently, there is a $14.4 million
statewide cap.

“The beast in me could not rest, and I wondered: Was there more?”
Darland says.

Besides looking through 990s—records filed by nonprofit
organizations with the Arizona Corporation Commission—Darland
examined Maricopa County Recorder’s Office records. That’s where
Darland found a deed that showed Yarbrough owned the building where SCA
and ACSTO are located.

Yarbrough purchased the 2241 E. Pecos Road property in Chandler for
$275,000 from Bruce and Wendy Dunn, who happen to be listed as the
president and director of ACSTO and SCA. Yarbrough charged ACSTO
$44,981 in rent in 2007. SCA listed its rent as $4,000 on the
organizations 2007 990 filing.

Darland put together a timeline that shows in 1998, Yarbrough and
his partner, David J. Harowitz, co-founded ACSTO. Using the 990s,
Darland determined that from 2001 to 2007, Yarbrough earned an average
annual salary of $96,571.43 to serve as the executive director of
ACSTO.

In 2002, Yarbrough was elected to represent Legislative District 21,
but he kept his job as executive director of ACSTO. In October 2005,
Yarbrough and Harowitz started HY Processing, a private company that
processes tax-credit scholarships and grant applications from ACSTO and
SCA. In 2006, ACSTO paid $363,620 in administrative fees to HY
Processing; in 2007, it paid $426,895.

Besides rent and processing fees, Yarbrough and partner Harowitz
also collected $171,171 in legal fees paid by ACSTO in 2007; they also
garnered $1,181 from SCA that year.

Darland estimates that Yarbrough has earned at least $1,116,238 (in
salaries, legal fees and rent) based on his work in the tax-credit
industry.

“All of this is very surreal,” Darland says. “I didn’t have to break
into his office to get (this information), but that’s what’s
frustrating: It should have been caught before, but it wasn’t. There
needs to be more oversight to make sure we don’t create these
situations that allow (representatives) to keep their private-sector
jobs. There needs to be a checks-and-balances system so we know no one
is going to directly benefit when they sponsor legislation.”

Yarbrough has two tax-credit bills pending this year, including a
corporate tax-credit program for private schools that allows the
current $14.4 million annual cap to increase 20 percent per year in
perpetuity. The lawmaker also got approval for a special session to
create a new tax-credit program, to be capped at $5 million, to benefit
473 children with disabilities and in foster care whose private-school
vouchers were recently deemed unconstitutional by the state Supreme
Court. (See The Skinny for more information.) That program passed the
House on Tuesday, May 26.

The Tucson Weekly also found documentation in SCA’s
2007 990 documenting that the organization paid current Arizona
Corporation Commissioner Bob Stump $57,000 for fundraising while he was
working as a state representative and running for the Corporation
Commission seat. While in the Legislature, Stump was also a big
supporter of private-school tax credits. The Weekly called Stump
for comment, but he did not respond.

This is not the first time the combination of school-tax-credit
money and conflicted politicians has caused controversy.

In the 1990s, Arizona School Choice Trust, a private school tuition
organization, was investigated by the Federal Election Commission for
allegedly using a $100,000 donation to pay Jeff Flake—then a
state representative, and now a U.S. congressman—to lobby for
tax-credit payroll-deduction legislation while he was running for
Congress. The FEC, however, determined the arrangement was legal.

This article appears in May 28 – Jun 3, 2009.