A Montana Supreme Court decision barring religious schools from a tax credit program will be appealed to the U.S. Supreme Court.
Meanwhile, both sides in the case have asked the Montana court to hold off on implementing its decision while 2018 tax information gets sorted out. Information from 2017 shows that there likely won't be much to add up.
For the second year of its existence, the tax credit program used only about 1 percent of the $3 million set aside by the state. Montana's only scholarship organization reported receiving 229 donations totaling $35,253 dollars in 2017 — about $2,000 lower than the year before.
The tax credit program was approved by the legislature and allowed to become law by Gov. Steve Bullock in 2015. It lets Montanans receive a tax credit of up to $150 for donations to approved scholarship organizations for private schools or "innovative education programs" in public schools. For the two years of tax information available, donations to religious schools were allowed, and the Department of Revenue's website says that such donations will be allowed on 2018 taxes.
The law has been the focal point of a lawsuit challenging rules from the Department of Revenue that excluded religious schools from the program. A district court judge ruled that religious school could be included, but in December the Montana Supreme Court said those schools could be barred.
The 2015 law was Montana's first foray into school choice programs, which typically direct public money toward private schools. Advocates of such programs argue that they allow those without financial means to attend private schools and have educational options outside their zoned public schools. Critics argue that the programs siphon money from public schools, subsidize religious instruction and reward schools who don't have to adhere to the same rules as public schools, like for the acceptance of students with special needs.
Eric Feaver, who leads Montana's largest teacher's union, said he doesn't see the program taking flight in Montana even if religious schools are included. The union opposed the inclusion of religious schools, and has vociferously opposed school choice legislation.
"I don't believe Montanans are fooled by the enticement of $150," he said. "I think people like their public schools and want to support them first and foremost. ... If people really thought this was going to catch fire moving forward, there would have been more scholarship organizations."
Jake Penwell, who previously served as the state director of ACE Scholarships, a private school scholarship donation group, has argued that the $150 credit is too small. ACE does not participate in the tax credit program, and the group does not list a Montana director on its website; a message left asking about the status of the position was not returned.
"Capping the tax credits for individual contributors at $150 per year effectively discourages most donors from participating," Penwell wrote.
A 2016 report from the left-leaning Institute of Taxation and Economic Policy and The School Superintendents Association lays out how some taxpayers in Montana and eight other states can get a full reimbursement through a state tax credit for a donation amount, plus save money on federal taxes by claiming the donation as a deduction.
“When the impact of state tax credits is combined with federal tax deductions (and sometimes state tax deductions as well), some taxpayers in nine states can actually turn a profit,” the report reads.
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Montana’s $150 cap, or $300 for couples filing jointly, means that even if taxpayers use both mechanisms they don’t stand to make much, as the deduction likely won’t make a major dent in federal taxes.
ITEP projects that a joint filing subject to the federal alternative minimum tax, making between $200,000 and $500,000 per year, could make $105 dollars off a $300 donation.
The group is largely critical of tax credits, describing the system as the “legalized laundering of public funds.” The report was criticized by pro-school choice group EdChoice, which supported the Montana suit, and has exchanged dueling blog posts with ITEP about the validity of the analysis.
The Montana Supreme Court decision was hailed by advocates for cutting out religious schools like the American Civil Liberties Union, Americans United for Separation of Church and State, and Montana's statewide teacher's union.
But the Institute for Justice, a firm that represents conservative causes across the country, announced the next day that it would appeal the decision to the U.S. Supreme Court.
On Dec. 24, lawyers filed a motion for the state court to stay its ruling, effectively continuing to allow religious schools in the program while the U.S. Supreme Court decides whether to take the case. The Department of Revenue opposed the arguments used for the stay, but said that a stay would "provide for more efficient tax administration" and was therefore acceptable.
The case takes on a unique issue among school choice legal battles — it forces courts to address whether or not a tax credit is government spending. Most previous school choice cases have been decided on other issues, like taxpayer standing.
The Montana Supreme Court's majority opinion highlights the use of "indirect appropriations" in the state constitution's prohibition against directing public money toward religious programs.
However, the appeal would not attempt to re-litigate that issue, said Erica Smith, a lawyer for the Institute on the case. The appeal will instead argue that the state court's interpretation of Montana's constitution is at odds with the federal constitution, and therefore the case needs a new decision. According to Smith, a petition for the court to review the case has not been filed yet; it needs to be filed by March 12.
“We are very confident the Supreme Court will take up this case and reverse,” she said.