Arizona weighs unemployment tax break for churches

PHOENIX (AP) -- Hundreds of private school teachers and day care workers employed by religious organizations wouldn't be eligible for unemployment benefits under a proposed law backed by Republicans in the Arizona Legislature.

The measure marks the latest Republican-led effort to expand tax subsidies for religious institutions and limit unemployment insurance at a time when the state's jobless benefits fund is millions of dollars in the hole because of the struggling economy.

House Bill 2645 would allow religious organizations to avoid paying unemployment taxes for educational and day care workers. The legislation advanced by the Arizona Senate on Wednesday has the support of religious schools and conservative groups. The Republican-led Arizona House passed the bill in a partisan vote in March.

Arizona law already allows organizations operating primarily for religious purpose to avoid paying unemployment taxes. Proponents argue that the proposed law is necessary after some state tax officials recently started interpreting the current religious exemption so that it only applies to church staff and not private school teachers. They predict religious schools will go bankrupt if they have to pay unemployment taxes.

"We just want it corrected and to go back to status quo," said Josh Kredit, a lawyer for the Center for Arizona Policy, a powerful conservative group. "These are tiny little preschools that would go out of business."

Democrats have rallied against the measure, arguing that churches should provide unemployment benefits to teachers.

Religious organizations can willingly offer unemployment benefits to employees and some do, said Nicole Moon, spokeswoman for the state's Department of Economic Security.

Federal law and court rulings have not clearly defined what constitutes operating primarily for religious purposes, so DES determined last year that schools and child care centers did not qualify under the exemption because their mission statements were to provide general education or adult supervision, Moon said.

Monica Stern, a Phoenix accountant who represents several religious schools, said she alerted the Center for Arizona Policy about the new interpretation because she was worried some of her clients would be put out of business. Stern said one school faced a tax assessment of $25,000, while a larger school could owe $100,000 under the revamped policy.

"Religious schools are not very profitable," she said. "Most of them don't pay rent to the church. They are educating children on the church campus typically, and they are all struggling."

But Democrats argue that financial hardship claims shouldn't allow quasi-religious private schools to dismiss educational staff without providing unemployment benefits.

"It's ridiculous," said Democratic Sen. Ed Ableser, of Tempe. "These institutions are freeloaders."

The Arizona Legislature has also advanced legislation this year that would require workers to prove they were fired before collecting unemployment benefits. The Senate is poised to vote on a measure Thursday that would expand property tax benefits for religious organizations.

The state's unemployment trust fund owes roughly $311 million to the federal government, down from a peak of more than $420 million.

Arizona's unemployment rate has dropped slightly, going from 8 percent in January to 7.9 percent in February, according to the latest state Department of Administration estimates.