Winn v. Garriott

• Court: Court of Appeals for the Ninth Circuit
• Decided: April 21, 2009
• Docket: 05-15754
• Status: Published

Opinion

FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

KATHLEEN M. WINN, an Arizona  taxpayer; DIANE WOLFTHAL, an Arizona taxpayer; MAURICE WOLFTHAL, an Arizona taxpayer LYNN HOFFMAN, an Arizona taxpayer, Plaintiffs-Appellants, No. 05-15754 v.  D.C. No. CV-00-00287-EHC ARIZONA CHRISTIAN SCHOOL TUITION ORGANIZATION; ARIZONA SCHOOL OPINION CHOICE TRUST; LUIS MOSCOSO; GALE GARRIOTT, in his official capacity as Director of the Arizona Department of Revenue; GLENN DENNARD, Defendants-Appellees.  Appeal from the United States District Court for the District of Arizona Earl H. Carroll, District Judge, Presiding

Argued and Submitted January 24, 2008—Pasadena, California

Filed April 21, 2009

Before: Dorothy W. Nelson, Stephen Reinhardt and Raymond C. Fisher, Circuit Judges.

Opinion by Judge Fisher

4587 WINN v. ARIZONA CHRISTIAN SCHOOL 4591

COUNSEL

Marvin S. Cohen (argued), Sacks Tierney, P.A., Scottsdale, Arizona; Paul Bender, Arizona State University College of Law, Tempe, Arizona; and Isabel M. Humphrey, Three Gate- way, Phoenix, Arizona, for the plaintiffs-appellants.

Terry Goddard, Arizona Attorney General, and Paula S. Bickett (argued), Phoenix, Arizona, for the defendants- appellees.

Timothy D. Keller (argued) and Clint Bolick, Institute for Jus- tice, Phoenix, Arizona; and Richard D. Komer, Institute for Justice, Washington, D.C., for intervenors-defendants- appellees Arizona School Choice Trust, Glenn Dennard and Luis Moscoso.

Benjamin W. Bull, Gary S. McCaleb, Jeremy D. Tedesco, Alliance Defense Fund, Scottsdale, Arizona, for intervenor- defendant-appellee Arizona Christian School Tuition Organi- zation. 4592 WINN v. ARIZONA CHRISTIAN SCHOOL OPINION

FISHER, Circuit Judge:

Arizona law grants income tax credits restricted to taxpay- ers who make contributions to nonprofit organizations that award private school scholarships to children. Plaintiffs, cer- tain Arizona taxpayers, allege that some of the organizations funded under this program restrict the availability of their scholarships to religious schools, and that the program in effect deprives parents, the program’s aid recipients, of a gen- uine choice between selecting scholarships to private secular schools or religious ones. We conclude that the plaintiffs’ complaint, which at this stage of the litigation we must view in the light most favorable to the plaintiffs, sufficiently alleges that Arizona’s tax-credit funded scholarship program lacks religious neutrality and true private choice in making scholar- ships available to parents. Although scholarship aid is allo- cated partially through the individual choices of Arizona taxpayers, overall the program in practice “carries with it the imprimatur of government endorsement.” Zelman v. Simmons-Harris, 536 U.S. 639, 655 (2002). We therefore hold, contrary to the district court, that plaintiffs’ allegations, if accepted as true, are sufficient to state a claim that Arizo- na’s private school scholarship tax credit program, as applied, violates the Establishment Clause of the United States Consti- tution.

BACKGROUND

Plaintiffs allege that Arizona’s Revised Statute § 43-1089 (“Section 1089”), as applied, violates the Establishment Clause of the First Amendment. Section 1089, first enacted by the Arizona legislature in 1997, gives individual taxpayers a dollar-for-dollar tax credit for contributions to “school tuition organizations” (“STOs”).1 A STO is a private nonprofit orga- 1 A parallel statute, which plaintiffs do not challenge in this action, gives corporations a dollar-for-dollar tax credit for contributions to STOs. See Ariz. Rev. Stat. § 43-1183. WINN v. ARIZONA CHRISTIAN SCHOOL 4593 nization that allocates at least 90 percent of its funds to tuition grants or scholarships for students enrolled in “a nongovern- mental primary or secondary school or a preschool for handi- capped students” within the state. Ariz. Rev. Stat. Ann. § 43- 1089(G)(2)-(3) (2005).2 STOs may not provide scholarships to schools that “discriminate on the basis of race, color, handi- cap, familial status or national origin,” but nothing in the stat- ute precludes STOs from funding scholarships to schools that provide religious instruction or that give admissions prefer- ences on the basis of religious affiliation. Id. § 1089(G)(2). Individual taxpayers can claim a tax credit of up to $500 for such contributions and married couples filing jointly can claim a credit of up to $1,000, provided the allowable tax credit does not exceed the taxes otherwise due. Id. § 1089(A)- (B). Taxpayers may designate their contribution to a STO that agrees to provide a scholarship to benefit a particular child, so long as the child is not the taxpayer’s own dependent. Id. § 1089(E). The tax credit is available to all taxpayers in Ari- zona, regardless of whether they are parents of school-age children or pay any private school tuition themselves.

Section 1089 requires STOs to provide scholarships or tuition grants to children “to allow them to attend any quali- fied school of their parents’ choice,” but also states that STOs may not provide scholarships while “limiting availability to only students of one school.” Id. § 1089(G)(3) (emphasis added). On its face, then, Section 1089 could have been inter- preted to require all STOs to provide scholarships to any qual- ified private school in the state, or to permit STOs to provide scholarships to a limited set of schools, so long as that set was greater than one. In practice, plaintiffs allege, many STOs have opted to limit the schools to which they offer scholar- 2 Hereinafter, all cites to “Section 1089” refer to Arizona Revised Stat- ute Annotated § 43-1089 (2005). Any differences between this current version of Section 1089 and the version in place as of February 2000, when plaintiffs’ complaint was filed, are not significant for the purposes of our analysis. 4594 WINN v. ARIZONA CHRISTIAN SCHOOL ships, and a number of STOs provide scholarships that may be used only at religious schools or schools of a particular denomination. For example, plaintiffs allege that Arizona’s three largest STOs, as measured by the amount of contribu- tions reported in 1998, each restricts its scholarships to use at religious schools. The largest of these, the Catholic Tuition Organization of the Diocese of Phoenix, restricts its scholar- ships to use at Catholic schools in the Phoenix Diocese such as St. Mary’s, which advertises its mission as being “to pro- vide a quality Catholic education by developing and sustain- ing a rich tradition grounded in Gospel and family values.” The second largest STO, the Arizona Christian School Tuition Organization, expressly restricts scholarships to use at “evan- gelical” Christian Schools. The third largest, Brophy Commu- nity Foundation, restricts its scholarships to use at two Catholic schools, one of which advertises its goal to be “ins- till[ing] a knowledge of the truths of faith, enlightened by the post-Conciliar teachings of the Church,” and the other of which promotes itself as offering students “an intimate rela- tionship with God” through “the process of nurturing the soul.”

Arizona does not specify scholarship eligibility criteria or dictate how STOs choose the students who receive scholar- ships, and STO-provided scholarships therefore vary consid- erably. Although STOs may choose to award scholarships primarily based on financial need, Section 1089 does not require it. The availability of scholarships to particular stu- dents and particular schools thus depends on the amount of funding a STO receives, the range of schools to which it offers scholarships and the STO’s own scholarship allocation decisions and eligibility criteria. Therefore, plaintiffs allege, because the largest STOs restrict their scholarships to sectar- ian schools, students who wish to attend non-religious private schools are disadvantaged in terms of the STO-provided scholarships available to them. Thus, plaintiffs argue, the dis- parities in the availability and amount of scholarships for use at religious and secular schools show that the structure of Sec- WINN v. ARIZONA CHRISTIAN SCHOOL 4595 tion 1089, as applied, favors religious over secular schools, and thereby violates the Establishment Clause.

Before Section 1089 became operative, the Arizona Supreme Court, based on its construction of the statute, held that it did not on its face violate the Establishment Clause or provisions of the Arizona state constitution. See Kotterman v. Killian, 972 P.2d 606 (Ariz. 1999) (en banc).3 After the statute took effect, different plaintiffs filed this suit against the Direc- tor of Arizona’s Department of Revenue in the United States District Court for the District of Arizona.4 Plaintiffs do not contest the facial validity of Section 1089, but rather assert that it violates the Establishment Clause as applied.5 The dis- trict court dismissed the suit as barred by the Tax Injunction Act. See Winn v. Killian, 307 F.3d 1011, 1013 (9th Cir. 2002). We reversed the dismissal, see id. at 1020, and the Supreme Court affirmed our decision. See Hibbs v. Winn, 542 U.S. 88, 112 (2004). On remand, the district court allowed two STOs, the Arizona Christian School Tuition Organization (“ACSTO”) and Arizona School Choice Trust (“ASCT”), and two parents of ASCT scholarship recipients, Glenn Dennard and Luis Moscoso, to intervene as defendants. ACSTO pro- vides scholarships only to religious schools and the ASCT 3 Significantly, in rejecting the facial challenge, the Arizona Supreme Court interpreted Section 1089 to require that “[e]very STO must allow its scholarship recipients to ‘attend any qualified school of their parents’ choice,’ and may not limit grants to students of only one such institution.” Id. at 614 (quoting Ariz. Rev. Stat. Ann. § 43-1089(E)(2) (2005) (empha- sis added)). “Thus,” the Arizona Supreme Court concluded, “schools are no more than indirect recipients of taxpayer contributions, with the final destination of these funds being determined by individual parents.” Id. Because plaintiffs in this action allege that, in practice, Section 1089 per- mits STOs to restrict the use of their scholarships to certain schools, the structure of the program as applied is notably different from the program’s structure as it was considered in Kotterman. 4 Current Director Gale Garriott has since replaced former Director Mark Killian as the named defendant. 5 Plaintiffs’ complaint alleged that Section 1089 is invalid both on its face and as applied, but they have since abandoned their facial challenge. 4596 WINN v. ARIZONA CHRISTIAN SCHOOL provides scholarships to any private school of the parents’ choice.6 Defendants again moved to dismiss, contending that plaintiffs lacked standing, that the suit was barred by res judi- cata and that plaintiffs had failed to state a claim under the Establishment Clause. The district court granted defendants’ motion to dismiss for failure to state a claim and plaintiffs appealed. We have jurisdiction under 28 U.S.C. § 1291 and we reverse and remand for further proceedings.

STANDARD OF REVIEW

We review the district court’s dismissal for failure to state a claim de novo, “accept[ing] all factual allegations in the complaint as true and constru[ing] the pleadings in the light most favorable to the nonmoving party.” Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). We affirm the district court “only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the alle- gations.” Enesco Corp. v. Price/Costco, Inc., 146 F.3d 1083, 1085 (9th Cir. 1998) (internal quotation marks omitted). “Standing is a question of law that we review de novo.” Salmon Spawning & Recovery Alliance v. Gutierrez, 545 F.3d 1220, 1224 (9th Cir. 2008).

ANALYSIS

I. Taxpayer Standing

[1] Plaintiffs’ only allegation of injury from the allegedly unconstitutional operation of Section 1089 arises from their status as Arizona taxpayers. It is well established that individ- 6 We use the term “defendants” to refer to the Director of Arizona’s Department of Revenue and the intervening defendants ACSTO, ASCT, Dennard and Moscoso. We use the term “defendant-intervenors” when referring only to the intervening defendants. At oral argument, plaintiffs stipulated that they challenge only those STOs that restrict scholarships to religious schools, and thus we note that ASCT is not being directly chal- lenged. WINN v. ARIZONA CHRISTIAN SCHOOL 4597 uals do not generally have standing to challenge governmental spending solely because they are taxpayers, because “it is a complete fiction to argue that an unconstitutional federal expenditure causes an individual federal taxpayer any measur- able economic harm.” Hein v. Freedom From Religion Found., Inc., 127 S. Ct. 2553, 2559 (2007) (plurality opinion). This rule applies with equal force to taxpayer suits challeng- ing an allegedly unconstitutional state action and those chal- lenging federal action. See DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342-49 (2006); Arakaki v. Lingle, 477 F.3d 1048, 1062-63 (9th Cir. 2007). The Supreme Court, however, has long recognized “a narrow exception to the general con- stitutional prohibition against taxpayer standing” when a plaintiff contends that a use of funds violates the Establish- ment Clause. Hein, 127 S. Ct. at 2564; see Flast v. Cohen, 392 U.S. 83, 88 (1968). Because plaintiffs have alleged that the state has used its taxing and spending power to advance religion in violation of the Establishment Clause, we hold that they have standing under Article III to challenge the applica- tion of Section 1089.

[2] As the Supreme Court recently reaffirmed, the Flast exception to the general bar against taxpayer standing is rooted “in the history of the Establishment Clause” and is designed to prevent “ ‘the specific evils feared by [its drafters] that the taxing and spending power would be used to favor one religion over another or to support religion in general.’ ” DaimlerChrysler, 547 U.S. at 348 (alterations in original) (quoting Flast, 392 U.S. at 103). The exception recognizes that the “injury” alleged in Establishment Clause challenges to governmental spending arises not from the effect of the challenged program on the plaintiffs’ own tax burdens, but from “the very ‘extract[ion] and spend[ing]’ of ‘tax money’ in aid of religion.” Id. (alterations in original) (quoting Flast, 392 U.S. at 106). Therefore, to satisfy the Flast test for tax- payer standing, plaintiffs need not show that an injunction against a particular taxing or spending program would cause “lawmakers . . . [to] dispose of the savings in a way that 4598 WINN v. ARIZONA CHRISTIAN SCHOOL would benefit the taxpayer-plaintiffs personally.” Id. at 348- 49. Instead, they need only show that the program challenged involves “a sufficient nexus between the taxpayer’s standing as a taxpayer and the . . . [legislative] exercise of taxing and spending power.” Bowen v. Kendrick, 487 U.S. 589, 620 (1988).

[3] Section 1089 gives Arizona taxpayers a tax credit for amounts they donate to STOs, up to the statutory cap of $500 for individuals or $1,000 for married couples filing jointly or the taxpayers’ entire state tax liability. See Ariz. Rev. Stat. Ann. § 43-1089(A), (C). Tax credits are deducted after tax- payers’ tax liability has been calculated, thereby giving tax- payers dollar-for-dollar “credits” against their state taxes for sums paid to STOs. Tax credits therefore operate differently from tax deductions; whereas tax deductions allow taxpayers only to reduce their income subject to taxation, tax credits allow individuals to make payments to a third party in satis- faction of their assessed tax burden. As the Supreme Court explained, “[i]n effect, § 43-1089 gives Arizona taxpayers an election” to direct a portion of the money they owe the state to either a STO or to the Arizona Department of Revenue. Hibbs, 542 U.S. at 95. Accordingly, “[a]s long as donors do not give STOs more than their total tax liability, their . . . con- tributions are costless.” Id. Tax credits are therefore a power- ful legislative device for directing money to private organizations.7 7 Section 1089’s success is evident from the year-over-year increases in contributions since the program took effect. Plaintiffs allege that taxpayers claimed $1.8 million in credits for contributions to STOs in 1998, when the program was under legal challenge that made it unclear whether donors would receive the credit, and over $5.9 million in 1999. According to data on the Arizona Department of Revenue’s public website, these contributions appear to have further increased since the filing of plaintiffs’ complaint, with taxpayers claiming credits worth over $54 million in 2007. See Arizona Department of Revenue Office of Economic Research & Analysis, Individual Income Tax Credit for Donations to Private School Tuition Organizations, 2007, at 3 (April 1, 2008), available at http://www.revenue.state.az.us/ResearchStats/private_schl_credit_report_ 2007.pdf (last visited April 13, 2009). WINN v. ARIZONA CHRISTIAN SCHOOL 4599 Defendant-intervenors argue that plaintiffs do not have standing to challenge Section 1089 even under the Flast exception, because the money directed by taxpayers to STOs under the tax credit program does not pass through the state treasury and therefore the program cannot be characterized as involving any “expenditure” of public funds.8 The Supreme Court has recognized, however, that state tax policies such as tax deductions, tax exemptions and tax credits are means of “channeling . . . [state] assistance” to private organizations, which can have “an economic effect comparable to that of aid given directly” to the organization. Mueller v. Allen, 463 U.S. 388, 399 (1983). The Court has therefore refused to make arti- ficial distinctions between direct grants to religious organiza- tions and tax programs that confer special benefits on religious organizations, particularly tax credits such as the one challenged here. As the Court noted, “for purposes of deter- mining whether such aid has the effect of advancing religion,” it makes no difference whether the qualifying individual “re- ceives an actual cash payment . . . [or] is allowed to reduce . . . the sum he would otherwise be obliged to pay over to the state.” Comm. for Pub. Educ. & Religious Liberty v. Nyquist, 413 U.S. 756, 790-91 (1973). In either case, “the money involved represents a charge made upon the state for the pur- pose of religious education.” Id. at 791 (internal quotation marks omitted); see also Arkansas Writers’ Project, Inc. v. Ragland, 481 U.S. 221, 236 (1987) (Scalia, J., dissenting) (“Our opinions have long recognized — in First Amendment contexts as elsewhere — the reality that tax exemptions, cred- 8 ACSTO’s argument that our reasoning is bound by Kotterman’s con- clusion that the tax credit does not constitute an “appropriation of public money” within the meaning of the Article II, Section 12 and Article IX, Section 10 of the Arizona constitution, see 972 P.2d at 617-21, is merit- less. The Arizona Supreme Court’s holding has no bearing on our analysis of plaintiffs’ standing in federal court, which turns on the requirements derived from Article III of the U.S. Constitution. Cf. Hein, 127 S. Ct. at 2562 (“One of the controlling elements in the definition of a case or con- troversy under Article III is standing.”) (internal quotation marks and alterations omitted). 4600 WINN v. ARIZONA CHRISTIAN SCHOOL its, and deductions are a form of subsidy that is administered through the tax system.”) (internal quotation marks omitted). In effect, Section 1089 works the same as if the state had given each taxpayer a $500 check that can only be endorsed over to a STO or returned to the state. Because Section 1089 does not allow taxpayers to keep the money under any cir- cumstance — and because it directs how the money will be spent if it is not surrendered to the state — we reject the sug- gestion that this money is not publicly subsidized simply because it does not pass through the treasury.

Nor does Section 1089 lack “a sufficient nexus between the taxpayer’s standing as a taxpayer and the . . . [legislative] exercise of taxing and spending power” just because the Ari- zona legislature does not transfer money to STOs or religious schools directly. See Bowen, 487 U.S. at 620. The Arizona legislature promulgated Section 1089 under the power con- ferred by Article IX of the Arizona constitution, a provision that is equivalent to the U.S. Constitution’s taxing and spend- ing clause. See Ariz. Const. art. IX, § 3. By giving taxpayers a dollar-for-dollar credit for contributions to STOs and then requiring STOs to “allocate[ ] at least ninety percent of . . . [their] annual revenue for educational scholarships or tuition grants to children,” the state legislature has provided only two ways for this money to be spent: taxpayers will either give the dollar to the state, or that dollar (or at least 90 percent of it, after allowable STO administrative expenses) will end up in scholarships for private school tuition. See Ariz. Rev. Stat. Ann. § 1089(G)(3) (2005).

[4] By structuring the program as a dollar-for-dollar tax credit, the Arizona legislature has effectively created a grant program whereby the state legislature’s funding of STOs is mediated through Arizona taxpayers. The Court has recog- nized that taxpayer standing exists even when a legislature does not directly allocate funds to religious organizations, but instead mediates the funds through another agency. See Bowen, 487 U.S. at 618-20. Although the Arizona legislature WINN v. ARIZONA CHRISTIAN SCHOOL 4601 has chosen an alternative method of allocating the funds that Section 1089 makes available to STOs, the Court clarified in Bowen that it was the legislature’s exercise of its taxing and spending power, rather than the actions of the agency, that permitted taxpayers to raise an Establishment Clause chal- lenge. See id. at 619 (“We do not think . . . that appellees’ claim that . . . [appropriated] funds are being improperly used by individual grantees is any less a challenge to congressional taxing and spending power simply because the funding autho- rized by Congress has flowed through and been administered by the Secretary [of Health and Human Services].”). Accord- ingly, under Bowen, taxpayers have standing to challenge a legislature’s exercise of its taxing and spending power even when the legislature does not use that power to directly fund religious organizations, but instead uses the power to autho- rize third parties to fund such organizations.

[5] Consistent with these principles, the Supreme Court has repeatedly decided Establishment Clause challenges brought by state taxpayers against state tax credit, tax deduction and tax exemption policies, without ever suggesting that such tax- payers lacked Article III standing. See, e.g., Mueller, 463 U.S. at 390 (state income tax deduction for school expenses that could be claimed for expenses at religious schools); Nyquist, 413 U.S. at 789-90 (hybrid state tax deduction-tax credit pro- gram for tuition paid to private schools); Hunt v. McNair, 413 U.S. 734, 737-38 (1973) (state tax exemption for state-issued revenue bonds that went in part to religious schools); Walz v. Tax Comm’n, 397 U.S. 664, 666 (1970) (state property tax exemption for religious nonprofit organizations). The Supreme Court has also repeatedly decided challenges brought by state taxpayers to indirect aid programs — where the ultimate decision to confer aid rested with a private indi- vidual and not the government — and again never suggested that taxpayers lacked standing. See, e.g., Zelman, 536 U.S. at 645 (state tuition grants to parents for public or private schools); Nyquist, 413 U.S. at 781 (state tuition grants to par- ents for private schools). Although we acknowledge that “the 4602 WINN v. ARIZONA CHRISTIAN SCHOOL [c]ourt’s exercise of jurisdiction . . . is not precedent for the existence of jurisdiction,” Doe v. Madison Sch. Dist. No. 321, 177 F.3d 789, 795 (9th Cir. 1999) (en banc) (internal quota- tion marks omitted; alteration in original), we also note that the Court has rejected the suggestion that its consistent past practice of exercising jurisdiction amounts to “mere ‘sub silentio holdings’ ” that “command no respect,” Hibbs, 542 U.S. at 94. We therefore hold that plaintiffs have standing as taxpayers to challenge Section 1089 for allegedly violating the Establishment Clause.

II. The Establishment Clause

[6] “The Establishment Clause of the First Amendment, applied to the States through the Fourteenth Amendment, pre- vents a State from enacting laws that have the ‘purpose’ or ‘effect’ of advancing or inhibiting religion.”9 Zelman, 536 9 Defendants argue that plaintiffs’ as-applied challenge is barred by “res judicata” in light of Kotterman. In Hibbs v. Winn, however, the Supreme Court observed that “Kotterman, it is undisputed, has no preclusive effect on the instant as-applied challenge to § 43-1089 brought by different plaintiffs.” 542 U.S. at 95. Insofar as we are free to call this observation into question, we nonetheless find defendants’ argument unpersuasive. Under the full-faith-and-credit statute, 28 U.S.C. § 1738, “[w]e give to a state-court judgment the same preclusive effect as would be given that judgment under the law of the State in which the judgment was rendered.” Coeur D’Alene Tribe of Idaho v. Hammond, 384 F.3d 674, 688 (9th Cir. 2004) (internal quotation marks omitted). Kotterman upheld Section 1089 on a facial challenge before the statute was implemented. Plaintiffs allege that Section 1089 violates the Establishment Clause because STOs have not provided scholarships in a way that is neutral toward religion and that offers parents true private choice; this allegation is predicated on evidence that was not available prior to Section 1089’s implementation. Plaintiffs’ as-applied challenge thus does not, as defendants argue, implicate Arizo- na’s doctrine of virtual representation. See El Paso Natural Gas Co. v. State, 599 P.2d 175, 178 (Ariz. 1979). Arizona law bars cases under res judicata only where “no additional evidence is needed to prevail in the second action than that needed in the first.” Phoenix Newspapers, Inc. v. Dep’t of Corr., 934 P.2d 801, 804 (Ariz. App. 1997) (emphasis added). In WINN v. ARIZONA CHRISTIAN SCHOOL 4603 U.S. at 648-49 (citing Agostini v. Felton, 521 U.S. 203, 222- 23 (1997)).

A. Secular Purpose

The first prong of this standard requires us to consider whether the statute was “enacted for . . . [a] valid secular pur- pose.” Id. at 649. “[A]lthough a legislature’s stated reasons will generally get deference, the secular purpose required has to be genuine, not a sham, and not merely secondary to a reli- gious objective.” McCreary County, Ky v. ACLU, 545 U.S. 844, 864 (2005).

[7] The legislative history of Section 1089 shows that its primary sponsor’s concern in introducing the bill was provid- ing equal access to a wide range of schooling options for stu- dents of every income level by defraying the costs of educational expenses incurred by parents. See Ariz. House of Rep. Comm. on Ways & Means, Minutes of Meeting, Tues. Jan. 21 1997. Plaintiffs do not contest that this purpose, if genuine, is both secular and valid. Plaintiffs argue, however, that Section 1089’s design and scope reveal this purpose to be a sham. Specifically, plaintiffs argue that Section 1089’s oper- ation shows that the program, which provides aid only to stu- dents who attend private schools, was enacted not to give low-income children a meaningful opportunity to attend those schools, but to advance the legislature’s religious aims.

determining whether a program’s secular purpose is genuine, and whether a program has the primary effect of advancing religion, we may consider additional evidence as to how the program operates in reality. See, e.g., McCreary County, Ky. v. ACLU, 545 U.S. 844, 862 (2005) (holding the “implementation of the statute, or comparable official act” are relevant in examining a program’s secular purpose (internal quotation marks omit- ted)). We therefore agree with the Supreme Court that “Kotterman . . . has no preclusive effect on the instant as-applied challenge . . . .” Hibbs, 542 U.S. at 95. 4604 WINN v. ARIZONA CHRISTIAN SCHOOL [8] Plaintiffs are correct that the nature of a program’s operation may, in some instances, reveal its ostensible pur- pose to be a sham. See McCreary, 545 U.S. at 862 (stating that, in some cases, “the government action itself bespoke the purpose” of a program that violated the Establishment Clause) (citing Sch. Dist. of Abington Twp. v. Schempp, 374 U.S. 203, 223-24 (1963)). As the Court held in McCreary, the inquiry whether a program’s putative purpose is genuine and “not merely secondary to a religious objective,” id. at 864, is undertaken from the perspective of “an ‘objective observer,’ one who takes account of the traditional external signs that show up in the ‘text, legislative history, and implementation of the statute,’ or comparable official act.” Id. at 862 (quoting Santa Fe Indep. Sch. Dist. v. Doe, 530 U.S. 290, 308 (2000) (internal quotation marks omitted)). Plaintiffs’ allegations concerning Section 1089’s operation are therefore relevant to whether the program has a genuine secular purpose.

As we discussed above, for example, Section 1089 could, on its face, be interpreted to require each STO to provide scholarships for use at any qualified private school, religious or secular. Plaintiffs allege, however, that in practice STOs are permitted to restrict the use of their scholarships to use at certain religious schools. Such allegations, if proved, could belie defendants’ claim that Section 1089 was enacted primar- ily to provide Arizona students with equal access to a wide range of schooling options.

[9] At the same time, we are mindful of the Supreme Court’s “reluctance to attribute unconstitutional motives to the states, particularly when a plausible secular purpose for the state’s program may be discerned from the face of the statute.” Mueller, 463 U.S. at 394-95. The Court has held that programs that direct benefits exclusively to private schools, as Section 1089 does, may be “adequately supported by legiti- mate, nonsectarian interests,” including “promoting pluralism and diversity among [the state’s] public and nonpublic schools.” Nyquist, 413 U.S. at 773. The question before us, WINN v. ARIZONA CHRISTIAN SCHOOL 4605 however, is not whether Section 1089 in fact has a genuine, secular purpose, but whether plaintiffs could prove, on the facts alleged in the complaint, that it does not. Accordingly, we conclude that plaintiffs’ allegations, if accepted as true, leave open the possibility that plaintiffs could reveal the legis- lature’s stated purpose in enacting Section 1089 to be a pre- tense.

B. Effect

We next consider whether Section 1089 “has the forbidden ‘effect’ of advancing or inhibiting religion.” Zelman, 536 U.S. at 649. In “refin[ing] the definition of governmental action that unconstitutionally advances religion,” the Supreme Court has “paid particularly close attention to whether the chal- lenged governmental practice either has the purpose or effect of ‘endorsing’ religion, a concern that has long had a place in our Establishment Clause jurisprudence.” County of Alle- gheny v. ACLU, 492 U.S. 573, 592 (1989). Guided by the Court’s opinion in Zelman, we conclude, for reasons set forth below, that plaintiffs have alleged facts sufficient to state an as-applied Establishment Clause claim under this endorse- ment test.

Section 1089 is an indirect aid program, under which the state gives tax credits to individuals who contribute to STOs, which in turn use the money to provide private school schol- arships. Plaintiffs allege that many of these STOs in fact exist to promote the funding of religious education. If the state of Arizona were to allocate funds directly to these religious STOs, the state would plainly violate the Establishment Clause. See Bowen, 487 U.S. at 609-10 (noting that “direct government aid” impermissibly advances religion “if the aid flows to institutions that are ‘pervasively sectarian’ ”). As defendants correctly argue, however, STOs are private chari- table organizations — albeit funded by taxpayer contributions 4606 WINN v. ARIZONA CHRISTIAN SCHOOL that the state will reimburse through dollar-for-dollar tax cred- its.10

[10] We nevertheless hold that if plaintiffs’ allegations are accepted as true, Section 1089 violates the Establishment Clause by delegating to taxpayers a choice that, from the per- spective of the program’s aid recipients, “deliberately skew[s] incentives toward religious schools.” Zelman, 536 U.S. at 650; see id. at 652 (emphasizing that in the educational assis- tance programs the Court has upheld, “[t]he incidental advancement of a religious mission, or the perceived endorse- ment of a religious message, is reasonably attributable to the individual recipient, not to the government, whose role ends with the disbursement of benefits”). In practice, plaintiffs allege, the choice delegated to taxpayers under Section 1089 channels a disproportionate amount of government aid to sec- tarian STOs, which in turn limit their scholarships to use at religious schools.11 The scholarship program thus skews aid in favor of religious schools, requiring parents who would prefer a secular private school but who cannot obtain aid from the few available nonsectarian STOs to choose a religious school to obtain the perceived benefits of a private school education. Accordingly, Section 1089’s delegation to taxpayers operates to deprive these parents, as the program’s aid recipients, of “ ‘genuinely independent and private choices’ ” to direct the program aid to secular schools. Id. at 651 (quoting Witters v. Wash. Dep’t of Servs. for the Blind, 474 U.S. 481, 487 10 Plaintiffs do not argue that STOs are state actors, so we do not decide whether the STOs’ conduct, in itself, could support an Establishment Clause claim. 11 This allegation is distinct from plaintiffs’ contention that Section 1089’s design reveals its putative secular purpose to be a sham. As we shall discuss below, the Supreme Court has frequently held that state poli- cies enacted for a valid secular purpose violate the Establishment Clause when they are not effectively designed to achieve that purpose. See, e.g., Nyquist, 413 U.S. at 788 (“In its attempt to enhance the opportunities of the poor to choose between public and nonpublic education, the State has taken a step which can only be regarded as one ‘advancing’ religion.”). WINN v. ARIZONA CHRISTIAN SCHOOL 4607 (1986)). Unlike indirect aid programs the Supreme Court has upheld, Section 1089 is not a “neutral program of private choice,” and a reasonable observer could therefore conclude that the aid reaching religious schools under this program “carries with it the imprimatur of government endorsement.” Id. at 655.

Defendants dispute this conclusion on two grounds: First, that as private institutions who do not receive direct govern- ment funding, they are no different from other nonprofit, reli- gious institutions that are funded through tax-deductible contributions. Second, that under the program, “government aid reaches religious schools only as a result of the genuine and independent choices of private individuals.” Zelman, 536 U.S. at 649. We address each of these arguments in turn.

1. Aid to Private Institutions

Defendants first argue that because STOs do not receive direct government funding, Section 1089 is no different from other programs that accord tax benefits to individuals who contribute to nonprofit, religious institutions. See, e.g., Her- nandez v. Comm’r, 490 U.S. 680, 695 (1989) (upholding fed- eral tax deduction for contributions to charitable and religious organizations); see also Walz, 397 U.S. at 666-67 (upholding state property tax exemption for religious and secular non- profit organizations). As with any program of government aid, however, whether such programs violate the Establishment Clause depends on whether they have “either . . . the purpose or effect of ‘endorsing’ religion.” County of Allegheny, 492 U.S. at 592; see Texas Monthly, Inc. v. Bullock, 489 U.S. 1, 17 (1989) (plurality opinion) (holding sales tax exemption exclusively available to religious periodicals violated Estab- lishment Clause because it “lack[ed] a secular objective that would justify this preference along with similar benefits for nonreligious publications or groups, and because it effectively endorses religious belief”); Nyquist, 413 U.S. at 783 (holding program including grants and tax deductions for private 4608 WINN v. ARIZONA CHRISTIAN SCHOOL school tuition had valid secular purpose, but violated Estab- lishment Clause because “the effect of the aid [wa]s unmis- takably to provide desired financial support for nonpublic, sectarian organizations”). The parallels defendants contend exist between Section 1089 and tax deduction programs that the Supreme Court has held “easily pass[ ] constitutional mus- ter,” Hernandez, 490 U.S. at 695, are therefore instructive, but only to the extent they shed light on the secular objectives, if any, that Section 1089 was enacted to promote.

[11] The secular objectives defendants argue Section 1089 promotes differ significantly from those advanced by tax deduction programs the Supreme Court has upheld. The fed- eral system addressed in Hernandez, for example, permits tax deductions for “any charitable contribution” to a qualified entity “organized and operated exclusively for religious, char- itable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition.” 26 U.S.C. §§ 170(a), (c)(2)(B); see also Regan v. Taxation with Representation of Wash., 461 U.S. 540, 544 (1983) (observ- ing Congress’ system of tax deductions and exemptions pro- vides “subsidy to non profit civic welfare organizations generally”). This system, the Court held, makes deductions available for contributions to an array of religious and secular organizations, and thus has “the primary effect of . . . encour- aging gifts to charitable entities, including but not limited to religious organizations.” Hernandez, 490 U.S. at 696. Section 1089, by contrast, offers narrowly targeted, dollar-for-dollar tax credits designed to fully reimburse contributions to STOs, most of which restrict recipients’ choices about how to use their scholarships. Although defendants contend these credits were enacted to provide Arizona schoolchildren equal access to a wide range of schooling options, defendants do not — and could not — suggest the credits are designed to promote donations of individual wealth or charitable giving to a broad array of institutions.12 Likewise, defendants do not suggest 12 As the Court recognized in Hernandez, 490 U.S. at 696, tax deduc- tions promote the secular purpose of encouraging individuals to use their WINN v. ARIZONA CHRISTIAN SCHOOL 4609 that Section 1089 has a secular purpose in common with laws granting tax exemptions to a broad range of nonprofit organi- zations, including churches. See Walz, 397 U.S. at 672-75 (holding law granting property tax exemptions to array of reli- gious and secular nonprofit institutions served to promote “beneficial and stabilizing influences in community life” and minimize “[t]he hazards of churches supporting govern- ment”); see also id. at 678 (noting the “unbroken practice of according . . . exemption[s] to churches, openly and by affir- mative state action, not covertly or by state inaction, is not something to be lightly cast aside”). Thus, we are not per- suaded that Section 1089 conforms with the Establishment Clause simply because it bears some superficial resemblance to programs that do.

own private wealth to make charitable gifts. By contrast, the one-to-one tax credits offered under Section 1089 encourage individuals to give money to private STOs, but allow them to obtain full reimbursement from the state for their contributions. See Nyquist, 413 U.S. at 789 (explaining that “the usual attribute of a tax credit” is that it is “designed to yield a predetermined amount of tax ‘forgiveness’ in exchange for performing a specific act which the State desires to encourage”). In this respect, the tax credits offered under Section 1089 resemble those that encourage individ- uals to provide public financing for the Federal Election Commission’s Presidential Election Campaign Fund (“PECF”) but which do not, by design, encourage private charitable donations to the PECF. See 26 U.S.C. §§ 9001-13. As we explained in our prior opinion in this litigation: a tax credit differs from a tax deduction in that where a tax deduction is involved, giving money to a religious institution is not, as is the case of a tax credit, a free gift. In the case of a tax credit, the taxes due are reduced by the full amount of the gift. In contrast, when a taxpayer is entitled to a tax deduction, the tax- payer must in most if not all instances still pay a majority of the tax involved: it is only his taxable income that is reduced by the amount of the gift, and, thus, his tax liability is reduced only by a percentage of the gift that is equal to the tax rate applicable to his income bracket. Winn v. Killian, 307 F.3d at 1015 n.5, aff’d Hibbs v. Winn, 542 U.S. 88. The tax credits offered under Section 1089 therefore do not promote the same secular purpose as the tax deductions upheld in Hernandez. 4610 WINN v. ARIZONA CHRISTIAN SCHOOL 2. Private Choice

The Supreme Court has “drawn a consistent distinction between government programs that provide aid directly to religious schools, and programs of true private choice, in which government aid reaches religious schools only as a result of the genuine and independent choices of private indi- viduals.” Zelman, 536 U.S. at 649 (citations omitted). Defen- dants argue that Section 1089, like other religiously neutral educational assistance programs the Supreme Court has found constitutional, is a “program of true private choice . . . and [is] thus constitutional.” Id. at 653.

The nature of the choices provided under Section 1089, however, differs significantly in structure from those under educational assistance programs the Court has held to be “programs of true private choice.”13 Id. In each of those pro- grams, the government “provid[ed] assistance directly” to par- ents or individual students, “who, in turn, direct[ed] the government aid to religious schools wholly as a result of their own genuine and independent private choice.” Id. at 652. Under the voucher program upheld in Zelman, for example, the state distributed tuition aid directly to eligible parents, who were free to use the aid to send their children to any par- ticipating public or private school, and those wishing their children to remain enrolled in public school received tutorial aid to accommodate that choice. Id. at 645.

Under Section 1089, by contrast, the state does not provide aid directly to parents. Instead the aid is mediated first through taxpayers, and then through private scholarship pro- 13 See Zelman, 536 U.S. 639; Zobrest v. Catalina Foothills Sch. Dist., 509 U.S. 1 (1993) (upholding federal program providing sign-language interpreter to student attending Catholic school); Witters, 474 U.S. 481 (upholding state vocational assistance program paying state aid directly to student attending religious college); Mueller, 463 U.S. 388 (upholding state tax deduction available to parents for their children’s public and pri- vate school expenses). WINN v. ARIZONA CHRISTIAN SCHOOL 4611 grams. Under Section 1089, all Arizona taxpayers are eligible for a tuition tax credit, and those whose tax liability is large enough to use the credit may apply it toward a contribution to any STO, regardless of whether that STO provides scholar- ships exclusively for use at religious schools. In turn, any Ari- zona parent who wishes to send her child to a private school may apply for a STO scholarship, provided that the child meets the STO’s eligibility criteria for the use of that scholar- ship.

[12] Unlike parents’ choices under the program in Zelman, or aid recipients’ choices under other programs the Court has upheld, parents’ choices are constrained by those of the tax- payers exercising the discretion granted by Section 1089. For example, by choosing to give state-reimbursed money to the Catholic Tuition Organization of the Diocese of Phoenix, which plaintiffs allege to be the largest STO, taxpayers can make their portion of the program aid available only to par- ents who are willing to send their children to Catholic schools. Although anyone may form a new STO devoted to funding scholarships at secular private schools, Section 1089 prohibits taxpayers from earmarking contributions for their own children. Thus, it is taxpayers who decide which STOs to fund and, consequently, who is eligible to receive STO- provided scholarships according to the criteria of the desig- nated STO.

Defendants acknowledge the differences between parents’ choices under Section 1089 and those afforded under indirect aid programs that the Supreme Court has previously upheld. They contend, however, that because Section 1089 offers “genuine and independent choices” to the taxpayers who fund STOs, these differences are irrelevant to whether Section 1089 violates the Establishment Clause. We disagree.

a. Parental choice

The parties do not contest that notwithstanding its structural differences from indirect aid programs the Court has upheld, 4612 WINN v. ARIZONA CHRISTIAN SCHOOL Section 1089 would satisfy the Establishment Clause if the program made scholarships available to parents on a reli- giously neutral basis and gave them a true private choice as to where to utilize the scholarships. Plaintiffs allege, however, this is not how the program works in practice. In Zelman, the Court identified several circumstances relevant to whether the indirect aid program at issue, which gave tuition grants to par- ents to apply toward private and fee-charging public schools, was “a program of true private choice . . . and thus constitu- tional[:]”

[T]he . . . program is neutral in all respects toward religion. It is part of a general and multifaceted undertaking . . . to provide educational opportunities to the children of a failed school district. It confers educational assistance directly to a broad class of individuals defined without reference to religion, i.e., any parent of a school-age child who resides in the . . . School District. The program permits the partici- pation of all schools within the district, religious or nonreligious. Adjacent public schools also may par- ticipate and have a financial incentive to do so. Pro- gram benefits are available to participating families on neutral terms, with no reference to religion. The only preference stated anywhere in the program is a preference for low-income families, who receive greater assistance and are given priority for admis- sion at participating schools.

There are no financial incentives that skew the program toward religious schools. Such incentives are not present . . . where the aid is allocated on the basis of neutral, secular criteria that neither favor nor disfavor religion, and is made available to both religious and secular beneficiaries on a nondiscrimi- natory basis.

Id. at 653-54 (emphasis added) (citations, alterations and internal quotation marks omitted). WINN v. ARIZONA CHRISTIAN SCHOOL 4613 y13Under this rubric, Section 1089 falls short. The vast majority of the scholarship money under the program — over 85 percent as of the time of plaintiffs’ complaint — is avail- able only for use at religious schools.14 Because this aid is available only to parents who are willing to send their chil- dren to a religious school, the program fails to “confer[ ] edu- cational assistance directly to a broad class of individuals defined without reference to religion.” Id. at 653. Moreover, because a disproportionate amount of the program aid is ear- marked for use at religious schools before parents receive the aid, Section 1089 is not, from the parents’ perspective, “neu- tral in all respects toward religion” and does not equally “per- mit[ ] the participation of all schools . . . religious or nonreligious” in the program. Id. Additionally, because Sec- tion 1089 does not make aid equally available to parents “on the basis of neutral, secular criteria that neither favor nor dis- favor religion,” id. (alterations in original) (quoting Witters, 474 U.S. at 487-88), the program creates “ ‘financial incen- tive[s]’ ” for parents that “ ‘ske[w]’ the program toward reli- gious schools.” Id. (quoting Witters, 474 U.S. at 487-88); see Zobrest, 509 U.S. at 10 (upholding program because it “cre- ate[d] no financial incentive for parents to choose a sectarian school”). Thus, parents who wish to place their children in a private secular school, but who could not otherwise afford to do so, are at a disadvantage compared to parents who are will- ing to accept a scholarship for private religious schooling — 14 We recognize the Supreme Court in Mueller, 463 U.S. at 401, cau- tioned that such statistics lack constitutional import when a law is facially neutral. This case is different from Mueller, however, because Section 1089 does not allocate scholarship funds based on parents’ choices of schools, but instead mediates financial aid through taxpayers’ allocations to scholarship programs of their choice. As a result, a parent seeking scholarship aid does not have a “genuine and independent private choice” under the program because the parent’s choices are constrained by those of taxpayers. Zelman, 536 U.S. at 652. Facts showing the skewed concen- tration of funds in sectarian school scholarship programs would therefore support the claim that parents are financially incentivized to choose a reli- gious school. 4614 WINN v. ARIZONA CHRISTIAN SCHOOL either by choice or out of financial necessity. Although par- ents would, of course, have the option of leaving their chil- dren in public school, we reject the suggestion that the mere existence of the public school system guarantees that any scholarship program provides for genuine private choice. For parents wait-listed for scholarships to secular schools,15 the range of educational choices the STO-administered scholar- ship programs offer do not realistically include “obtain[ing] a scholarship and choos[ing] a nonreligious private school.” Zelman, 536 U.S. at 655. Section 1089, as applied, thereby creates incentives that pressure these parents into accepting one of the scholarships that are readily available under the program for use at a religious school. Therefore, Section 1089, as applied, “fails to provide genuine opportunities for . . . parents to select secular educational options for their school-age children.” Id.

b. Taxpayer choice

Defendants argue that despite this failure, Section 1089 does not violate the Establishment Clause because it provides a tax credit to all Arizona taxpayers, without respect to reli- gion, and gives taxpayers a genuine choice between directing their money to religious or secular STOs. Therefore, as Zel- man requires, “government aid reaches religious schools only as a result of the genuine and independent choices of private individuals.” Id. at 649. Plaintiffs do not contest that Section 1089 is neutral with respect to the taxpayers who direct money to STOs, or that any of the program’s aid that reaches 15 Data in the record, the veracity of which defendants do not challenge, show that in 2004, the Arizona School Choice Trust — the largest of the STOs that provides scholarships to any private secular or religious school — reported a waiting list of at least 700 students. If accurate, it would be the kind of information that would further support plaintiffs’ allegation that “parents choosing to send their children to non-religious, non-public schools may be unable to locate an STO willing and able to make a tuition grant to a student attending the non-religious school of the parents’ choice.” WINN v. ARIZONA CHRISTIAN SCHOOL 4615 a STO does so only as a result of the genuine and independent choice of an Arizona taxpayer. See Mueller, 463 U.S. at 398- 99. Plaintiffs argue, however, that Section 1089 violates the Establishment Clause precisely because the individual taxpay- ers’ choices available under the program serve to restrict par- ents’ opportunities to select secular educational options for their school-age children, skewing parents’ incentives to send their children to religious schools. As such, the program is not “neutral in all respects toward religion” and, concomitantly, is not a “program of true private choice.” Zelman, 536 U.S. at 653.

Defendants argue that it is irrelevant, under Zelman, whether an indirect aid program offers true private choice to parents, or instead, like Section 1089, offers true private choice to another broadly defined class of individuals. In describing what constitutes “true private choice,” however, the Court in Zelman frequently emphasized that the choice is one offered, on a neutral basis, to parents or students, as the beneficiaries of the program’s aid. See, e.g., id. at 652 (“A program . . . [like those the Court has upheld] permits govern- ment aid to reach religious institutions only by way of the deliberate choices of numerous individual recipients.”); id. at 653 (concluding one of the features of “true private choice” in the Ohio voucher program is that “[p]rogram benefits are available to participating families on neutral terms”); id. at 669 (O’Connor, J., concurring) (“Courts are instructed to con- sider two factors: first, whether the program administers aid in a neutral fashion, without differentiation based on the reli- gious status of beneficiaries or providers of services; second, and more importantly, whether beneficiaries of indirect aid have a genuine choice among religious and nonreligious orga- nizations when determining the organization to which they will direct that aid.”). Defendants contend this emphasis is simply because parental choice was the only private choice offered under those programs.

Defendants’ argument, however, disregards the Court’s analysis of how the true private choice described in Zelman 4616 WINN v. ARIZONA CHRISTIAN SCHOOL ensures that government aid flowing to religious institutions does not have “the forbidden ‘effect’ of advancing . . . reli- gion,’ ” id. at 649, even though the aid would have such an effect under a program of direct funding. See Bowen, 487 U.S. at 609-10 (noting “direct government aid” impermissibly advances religion “if the aid flows to institutions that are ‘per- vasively sectarian’ ”). The function of true private choice, the Court explained, is to eliminate the perception that the gov- ernment is endorsing religion through the money that is chan- neled to sectarian institutions: “The incidental advancement of a religious mission, or the perceived endorsement of a reli- gious message, is reasonably attributable to the individual recipient, not to the government, whose role ends with the dis- bursement of benefits.” Zelman, 536 U.S. at 652. The Court expressly linked its “true private choice” analysis to the “rea- sonable observer” inquiry as to whether the government is perceived to endorse the religious organizations that benefit from its aid. See id. at 655 (holding, with respect to the paren- tal choice the Court was addressing, that “no reasonable observer would think a neutral program of private choice, where state aid reaches religious schools solely as a result of the numerous independent decisions of private individuals, carries with it the imprimatur of government endorsement”).

In drawing this link, the Court adopted Justice O’Connor’s position in Mitchell v. Helms, 530 U.S. 793 (2000), that “ ‘[i]n terms of public perception, a government program of direct aid to religious schools . . . differs meaningfully from the gov- ernment distributing aid directly to individual students who, in turn, decide to use the aid at the same religious schools.’ ” Zelman, 536 U.S. at 655 (quoting Mitchell, 530 U.S. at 842- 43 (O’Connor, J., concurring in judgment)). Under this frame- work, the question central to the endorsement inquiry is whether “the reasonable observer would naturally perceive the aid program [in question] as government support for the advancement of religion.” Mitchell, 530 U.S. at 843 (O’Connor, J., concurring in the judgment) (discussing effect of programs providing direct aid to religious schools). WINN v. ARIZONA CHRISTIAN SCHOOL 4617 “ ‘[T]he reasonable observer in th[is] endorsement inquiry must be deemed aware’ of the ‘history and context’ underly- ing a challenged program.” Zelman, 536 U.S. at 655 (quoting Good News Club v. Milford Cent. Sch., 533 U.S. 98, 119 (2001) (internal quotation marks omitted)); see also Capitol Square Review and Advisory Bd. v. Pinette, 515 U.S. 753, 773 (1995) (O’Connor, J., concurring in part and concurring in judgment) (“[T]he endorsement test necessarily focuses upon the perception of a reasonable, informed observer.”) (empha- sis added). We impute this knowledge to the reasonable observer because “the endorsement inquiry is not about the perceptions of particular individuals or saving isolated nonad- herents from . . . discomfort,” but instead concerns “the politi- cal community writ large.” Id. at 779; accord Good News Club, 533 U.S. at 119 (adopting this position); see also Capi- tol Square, 515 U.S. at 779-80 (O’Connor, J., concurring in part and concurring in judgment) (“[T]he applicable observer is similar to the ‘reasonable person’ in tort law, who is not to be identified with any ordinary individual, who might occa- sionally do unreasonable things, but is rather a personification of a community ideal of reasonable behavior, determined by the [collective] social judgment.”) (internal quotation marks omitted; alteration in original).

[14] Accordingly, to assess whether the taxpayer choice offered under Section 1089 has the same constitutional effect as the parental choice Zelman upheld, we must consider the Court’s application of the reasonable observer inquiry to the program at issue in that case. Specifically, we must consider the circumstances the Court deemed relevant to why a reason- able, informed observer looking at the program upheld in Zel- man would conclude that “[t]he incidental advancement of a religious mission, or the perceived endorsement of a religious message” resulting from a program “is reasonably attributable to the individual recipient, not to the government, whose role ends with the disbursement of benefits.” 536 U.S. at 652. The Court’s guidance in earlier cases also sheds light on two cir- 4618 WINN v. ARIZONA CHRISTIAN SCHOOL cumstances that seemed particularly important to the reason- able observer analysis in Zelman.

First, a reasonable, informed observer would consider what role the person making the choice occupies in the structure of the program. See Larkin v. Grendel’s Den, Inc., 459 U.S. 116, 127 (1982) (holding statute allowing a church or school to veto a liquor license for establishments in their proximity vio- lated the Establishment Clause); Zelman, 536 U.S. at 652. In Larkin, the Court determined there was no “ ‘effective means of guaranteeing’ ” the veto power delegated to churches over liquor licenses “ ‘[would] be used exclusively for secular, neutral, and nonideological purposes.’ ” Id. at 125 (quoting Nyquist, 413 U.S. at 780).16 “In addition,” the Court contin- ued, “the mere appearance of a joint exercise of legislative authority by Church and State provides a significant symbolic benefit to religion in the minds of some by reason of the power conferred.” Id. at 125-26. Of course, the delegation of scholarship funding to individual taxpayers, such as in Sec- tion 1089, does less to promote religion than the delegation of zoning authority to churches. Larkin’s holding, however, illustrates that when a statute delegates “a power ordinarily vested in agencies of government” to a private party, see id. at 122, without reasonable assurance that the party’s choices will advance the secular purposes of the statute, any ensuing “perceived endorsement of a religious message” may be “rea- sonably attribut[ed]” to the government. See Zelman, 536 U.S. at 652. 16 In Zelman, the Court held “Nyquist does not govern neutral educa- tional assistance programs that, like the program here, offer aid directly to a broad class of individual recipients defined without regard to religion.” 536 U.S. at 662. As discussed above, Section 1089 does not “offer aid directly to individual recipients,” but rather mediates the aid through tax- payers and STOs. Insofar as Section 1089 is not a “program of true private choice,” within the meaning of Zelman, the Court’s holding in Nyquist is relevant to determining whether a reasonable observer would conclude the tax credit program endorses religion. WINN v. ARIZONA CHRISTIAN SCHOOL 4619 By contrast, the educational assistance programs addressed in Zelman were structured so that parents were permitted to choose how to best use the program aid to assist their chil- dren. The parents’ decisive role in the program gave them incentives to apply the program’s aid based on their children’s educational interests instead of on sectarian considerations, such as whether to promote the religious mission of a particu- lar school. Accordingly, by delegating a choice that “ensured that parents were the ones to select a religious school as the best learning environment” for their children, the government did not appear to endorse religion. Id. (stating how federal special education program providing sign-language interpreter to student attending Catholic school ensured that “the circuit between government and religion was broken, and the Estab- lishment Clause was not implicated”).

Second, a reasonable, informed observer would consider whether the choice delegated under a program has the effect of promoting, or hindering, the program’s secular purpose. See id. at 655. In Larkin, the Court recognized that the statute delegating veto power to churches and schools had the valid secular purpose of “protect[ing] spiritual, cultural, and educa- tional centers from the ‘hurly-burly’ associated with liquor outlets.” 459 U.S. at 123 (internal quotation marks omitted). The Court noted, however, that “these valid secular objectives can be readily accomplished by other means,” id. at 123-24, and that the veto power conferred by the statute could “be used by churches to promote goals beyond insulating the church from undesirable neighbors,” id. at 125. The Court concluded that the delegation could “be seen as having a ‘pri- mary’ and ‘principal’ effect of advancing religion.” Id. at 126. Similarly, in Nyquist, the Court invalidated a program provid- ing tuition grants and tax credits to parents sending their chil- dren to private schools because, although the program had a valid secular purpose, “the effect of the aid [wa]s unmistak- ably to provide desired financial support for nonpublic, sec- tarian institutions.” 413 U.S. at 783; see id. at 788 (“In its attempt to enhance the opportunities of the poor to choose 4620 WINN v. ARIZONA CHRISTIAN SCHOOL between public and nonpublic education, the State has taken a step which can only be regarded as one ‘advancing’ reli- gion.”). Nyquist illustrates that if an educational assistance program provides individual choice through tax credits, but those tax credits hinder the program’s ability to achieve its valid secular goals, a reasonable observer could well conclude that the tax credits are simply masking an Establishment Clause violation. Cf. Hibbs v. Winn, 542 U.S. at 93-94 (dis- cussing school desegregation cases invalidating use of tuition grants and tax credits to circumvent Brown v. Board of Edu- cation, 347 U.S. 483 (1954)); see also Bd. of Educ. of Kiryas Joel v. Grumet, 512 U.S. 687, 690 (1994) (invalidating statute creating school district coextensive with religious community that had valid purpose of providing special education services, but was unnecessarily tailored to promote sectarian aims); Norwood v. Harrison, 413 U.S. 455, 465 (1973) ( “[I]t is . . . axiomatic that a state may not induce, encourage or promote private persons to accomplish what it is constitutionally for- bidden to accomplish.”) (internal quotation marks omitted) (invalidating state program providing textbooks to racially discriminatory private schools).

[15] The choices delegated to parents under Zelman, by contrast, may have advanced — and at least did not thwart — the secular purpose of the program, which was to “provid[e] educational assistance to poor children in a demonstrably fail- ing public school system.” 536 U.S. at 649. The best educa- tional environment for a particular child within a failed school system may depend on qualitative considerations that could not easily be assessed at a policymaking level. See, e.g., id. at 674-75 (O’Connor, J., concurring) (suggesting metrics other than formal academic achievement that may play a role in parents’ educational choices in a failed school district). The choice offered under the program may have therefore helped ensure that the program achieved its secular aims by delegat- ing funding decisions to a class of persons — parents — who were better positioned than a state policymaking body to WINN v. ARIZONA CHRISTIAN SCHOOL 4621 make educational choices for individual students in a failing school system.

[16] Drawing upon these two circumstances — the role the person making the choice occupies in the structure of a pro- gram and whether delegating the choice promotes the secular purpose of the program — we turn to defendants’ argument that the individual, taxpayer choice provided under Section 1089 necessarily has the same constitutional effect as the parental choice upheld in Zelman. Under Section 1089, indi- vidual taxpayers may constrain the scholarship options of other parents’ children by choosing to direct their state- reimbursed contributions to sectarian STOs. Yet unlike par- ents, whose choices directly affect their children, taxpayers have no structural incentives under Section 1089 to direct their contributions primarily for secular reasons, such as the academic caliber of the schools to which a STO restricts aid, rather than for sectarian reasons, such as the religious mission of a particular STO. Thus, the taxpayers’ position in the struc- ture of Section 1089 provides no “ ‘effective means of guar- anteeing’ ” that taxpayers will refrain from using the program for sectarian purposes. Larkin, 459 U.S. at 125 (quoting Nyquist, 413 U.S. at 780). Significantly, plaintiffs’ allegations suggest the taxpayers’ role in the structure of Section 1089, as applied, encourages them to use the tax credits to promote sectarian goals, and that taxpayers have in fact used the pro- gram aid to this end.

[17] Relatedly, the taxpayer choice provided under Section 1089 does little to advance — indeed, it appears to thwart — the secular purpose of the program, which is to provide equal access to a wide range of schooling options for students of every income level by defraying the costs of educational expenses incurred by parents.17 Defendants do not suggest 17 Even if we assumed that taxpayer choice does, in some respect, advance the secular objectives of Section 1089, plaintiffs may be able to demonstrate that “these valid secular objectives can be readily accom- plished by other means,” and therefore that the program nevertheless “could be seen as having a ‘primary’ and ‘principal’ effect of advancing religion.” Larkin, 459 U.S. at 123-24, 126. 4622 WINN v. ARIZONA CHRISTIAN SCHOOL taxpayers are better positioned than government administra- tors to allocate program aid in a manner that will expand schooling options, and plaintiffs’ allegations suggest the demand for STO-provided scholarships available for use at secular schools markedly outstrips their supply. This mis- alignment between parents’ interests and taxpayers’ desires suggests that by vesting individual taxpayers with funding authority, Section 1089’s design works against its purpose of providing Arizona students with equal access to a wide range of schooling options. Although Section 1089 leaves individual parents free to create new STOs that cater to their educational preferences, this freedom provides little benefit to parents who do not have the time or capital to get others to support their STO, given that these parents cannot use their tax credits to fund scholarships for their own children.

[18] Accordingly, we conclude that there is a meaningful constitutional distinction between the individual, taxpayer choice provided under Section 1089 and the parental choice upheld in Zelman.18 Section 1089, as claimed to operate in practice, is not a program of true private choice, immune from further constitutional scrutiny. We therefore hold that plain- tiffs have alleged facts upon which a reasonable, informed observer could conclude that Section 1089, as applied, vio- lates the Establishment Clause even though the state does not directly decide whether any particular sectarian organizations will receive program aid. 18 In Green v. Garriott, ___ P.3d ___, 2009 WL 623346 (Ariz. Ct. App. March 12, 2009), the Arizona Court of Appeals in a 2-1 decision rejected an Establishment Clause challenge to Ariz. Rev. Stat. § 43-1183, which gives dollar-for-dollar tax credits to corporations for contributions to STOs. The Green majority did not consider, as we do here, whether any lack of religious neutrality in the actual operation of Section 1183 “carries with it the imprimatur of government endorsement,” Zelman, 536 U.S. at 655, and we are unpersuaded by the analysis of whether § 1183 is a pro- gram of “true private choice” for the reasons we have already discussed at length. WINN v. ARIZONA CHRISTIAN SCHOOL 4623 The district court’s order dismissing plaintiffs’ complaint is reversed and remanded for further proceedings consistent with this opinion.

REVERSED and REMANDED for further proceedings.