An investigation of Arizona’s individual tax-credit scholarship program, the country’s first program, reveals financial need is overwhelmingly the most important factor when distributing scholarships.

Since 1998, Arizona taxpayers have been allowed to claim credits against their personal state income taxes for donations to non-profit organizations called school tuition organizations (STOs) that distribute private-school scholarships. Individuals may claim a dollar-for-dollar credit of up to $500, and married couples filing jointly may claim up to $1,000. According to the latest annual report from the Arizona Department of Revenue, taxpayers contributed $55.3 million, which enabled more than 50 STOs to award 28,321 private school scholarships in 2008 averaging $1,900 each.

Since tax-credit scholarships are less expensive than public schools, every Arizona student who attends a private school using a scholarship saves public resources. According to a recent analysis, Arizona’s tax-credit scholarship program could save as much as $241.5 million annually. Given the program’s track record, Arizona law makers are proposing ways to expand the program. That should be welcome news to Arizona families, taxpayers, and elected officials.