Despite Budget Crisis, Arizona Lawmakers Propose Generous Tax Breaks For Subprime Schools

For several months, Arizona has been grappling with a budget crisis, with its deficit for this year projected to be $825 million and next year’s standing at $1.4 billion. Gov. Jan Brewer (R-AZ) used the budget shortfall to cut off urgent transplant funding for sick Arizonans, some of whom died without their access to critical medical care.

Brewer has also proposed putting a dent in her budget gap by cutting funding for state universities by 20 percent and cutting half of the state’s funding for community colleges. However, not all education providers are feeling the pain of Arizona’s budget woes. The for-profit college industry, in fact, could receive a new tax break worth millions of dollars:

State lawmakers, who have to close a major budget gap, are considering a bill that would give University of Phoenix’s parent company as well as other companies a tax break worth millions, according to some estimates…Arizona Department of Revenue estimates that the new bill could cost Arizona $33.2 million annually in tax revenue.

The main beneficiary of the tax break would be the Apollo Group, which owns the University of Phoenix, one of the largest for-profit colleges. As we’ve been documenting, these subprime schools make the vast majority of their revenue from the federal government, pay their CEOs huge salaries, but leave their students with crippling debt and bleak job prospects. They use intimidation and fear to recruit students, while posting profits margins of more than 30 percent.

The University of Phoenix is actually the “granddaddy” of the for-profit college industry. It was created in 1976 by humanities professor John Sperling, who believed he could “mass produce education and run his school more like a corporation than a university.” Currently, the University of Phoenix makes 88 percent of its revenue from the federal government. It’s CEO, Charles Edelstein, was paid more than $11 million last year.

In 2009, less than half of University of Phoenix students were paying back their loans. The school was also forced to pay $78.5 million “to settle a federal lawsuit in California alleging that compensation for Phoenix recruiters violated restrictions on incentive pay.” At a time when they are slashing their state’s education system to ribbons, Arizona lawmakers might want to rethink lavishing tax breaks onto an industry that hasn’t proven it can give students an education that’s worth the price.

For more information, read our report, “For-profits, not students.”