Charity survived indictments to help poor - East Valley Tribune: News

Rigged Privilege Charity survived indictments to help poor

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Posted: Tuesday, August 4, 2009 1:21 pm | Updated: 12:36 am, Sat Oct 8, 2011.

The tale of Maricopa County Schoolhouse Foundation begins with criminal indictments and fraud, but ends as an example of tuition tax credits’ promise for serving the underprivileged.

Special report: Rigged Privilege

The Maricopa County Schoolhouse Foundation is the most unusual of all Arizona’s 55 school tuition organizations.

The charity’s story began as a cautionary tale of how effortlessly Arizona’s Private School Tuition Tax Credits can be abused.

Sandra Dowling (East Valley Tribune)
Sandra Dowling

Ultimately, though, the foundation has grown into one of just seven STOs that give scholarships exclusively to underprivileged students.

Schools teach parents how to skirt law

Special report: Rigged Privilege

Cash poured into the charity from the very first year it opened.

In 2005, the charity received $230,000 through tax credit donations to provide scholarships for students at private campuses.

There was a problem, though.

The Schoolhouse Foundation is a nonprofit dedicated to serving homeless children.

Further, at its inception, the charity was an offshoot of the Thomas J. Pappas Schools — public schools where the Valley’s most underprivileged attended class.

Sandra Dowling, then the five-term Maricopa County superintendent of schools, ran the campuses and the charity.

The Schoolhouse Foundation told the Internal Revenue Service it would provide homeless students with scholarships to attend private high schools, according to federal tax records.

The IRS then approved the Schoolhouse Foundation as a tax-exempt charity in July 2006.

Four months later, a grand jury indicted Dowling on 25 counts of misusing public money, bid rigging and depositing taxpayer cash into the new nonprofit.

Roughly a half-million dollars in tax credit donations sat in the Schoolhouse Foundation’s bank account, for years unspent and unaccounted for. There was no consequence for failing to spend the state income tax money on private school tuition.

“I don’t think anyone thought there would be the success in collecting the amount of money that was collected,” said Marc Frazier, now the Schoolhouse Foundation’s executive director.

And Pappas’ students, denied basic skills by transient lives, were not destined for private schools.

The Schoolhouse Foundation did not give a single scholarship in its first two years, Arizona Department of Revenue records show.

The charity was attached to the county schools then, operating in the same office. In 2006, the county schools’ Web site asked for “tuition” tax credits to help its public school students. The site made no mention that the state subsidy is intended for private schools.

The Pappas schools were on the brink of closure, with a multimillion-dollar deficit and Dowling fighting criminal charges.

She pleaded guilty in July 2008 to a single misdemeanor charge of violating state employment law; all the original charges were eventually dropped.

Frazier was the county schools’ administrative services director under Dowling. He pleaded guilty last year to a misdemeanor, misuse of public money, for depositing a check, allegedly made out to the county school district, into the charity’s bank account.

The county school district was so closely tied to the charity that the two were almost indistinguishable from each other, federal tax records show, with money moving between the two regularly.

The charges, allegations, and lawsuits swirling around the Pappas schools, Dowling and the foundation were confusing even to a judge assigned to the case.

“I still don’t understand the criminal nature of what Mr. Frazier’s charged with,” Maricopa County Superior Court Judge Edward Burke said after accepting Frazier’s guilty plea, a transcript of court records show.

Dowling hired David Bridger as the Schoolhouse Foundation’s first executive director in 2005, and he held the job through 2007.

When contacted by the Tribune, Bridger largely refused to comment about the charity’s use of tax credits.

“I just think the focus should be on the children, homeless children,” he said.

Dowling said she had little knowledge of how the foundation operated and was not aware it still existed.

“I was on the outside looking in on that one,” she said.

The Schoolhouse Foundation’s federal tax filing from 2005 lists Dowling as president of the charity’s board of directors.

On the charity’s first two annual reports to the state Revenue Department, Bridger totaled the hundreds of thousands of dollars it received in tax credit donations. Under the section for amount spent on scholarships, Bridger wrote zeros.

“I’d call him up and say, ‘Really?’” said Georganna Meyer, the Revenue Department’s chief economist, who oversees the tax credit program.

The Schoolhouse Foundation paid out its first scholarship in 2007, state records show. But even that created problems, as Bridger wrote a check to Xavier College Preparatory in Phoenix for a student’s entire four-year tuition, roughly $40,000.

“He just didn’t know what he was doing,” Frazier said of Bridger.

In July, Frazier allowed a Tribune reporter to inspect the charity’s internal financial records, detailing which students it is giving scholarships to and which schools they attend. The balance sheets show that, since early 2008, the scholarship foundation has paid $506,000 in tuition for students at a number of Catholic high schools, including Brophy and Xavier college preparatories.

Dayna Hirschberg, a Schoolhouse Foundation administrator, said the charity limits its scholarships to families whose income is less than $40,000 a year.

Last year, after the Pappas schools closed, a public charter school, Children First Academy of Phoenix, opened in their place. The charity began making gifts to the academy. Jerry Lewis, the academy’s assistant superintendent, said the Schoolhouse Foundation has purchased buses and computers and paid the school nurse’s salary.

And now, four years and much turmoil later, it also appears to be one of the best examples of how Arizona’s private school tax credit law can benefit the underprivileged.

“It’s taken us this long,” Frazier said, “to finally get it all organized and to have enough students apply and everything else to be able to use this money properly, in what it was intended to be used for.”

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