Stillwater Christian School

Three parents whose children attend Stillwater Christian School in Kalispell filed a lawsuit in December 2016 to gain access to scholarship funds administered by the state Department of Revenue.

The Department of Revenue's appeal of a court ruling that requires Montana to include religious schools in a tax credit program raises a question that higher courts, so far, haven't met head-on.

Last year, the state excluded religious schools from the tax credit program, which awards credits capped at $150 that match donations to school scholarship organizations or innovative public school programs, it cited a provision in Montana’s constitution that says public governments “shall not make any direct or indirect appropriation or payment from any public fund or monies” toward religious institutions.

Flathead County District Court Judge Heidi Ulbricht found that the program is funded through tax credits, not appropriations, and the constitution does not address the use of tax credits.

"Non-refundable tax credits simply do not involve the expenditure of money that the state has in its treasury," Ulbricht wrote in May.

The program went full steam ahead in 2016, but only doled out about one percent of its $3 million yearly limit. 

In its appeal to the Montana Supreme Court, the state argues that Ulbricht failed to fully consider the provision in Montana's constitution that prohibits "indirect" payments to religious organizations. And while tax credits have a long legal trail — so far littered with victories for advocates of private schools — those cases haven't directly addressed the central question of Montana's case: Is a tax credit equivalent to state spending?

Legal history

It was surprising when Gov. Steve Bullock allowed the tax credit program to become law without his signature in 2015. The Democrat had another school choice proposal in 2015. In a 2013 veto of a tax credit bill, similar to the one that passed but without a financial cap, he declared his opposition to subsidizing private schools with “tax revenues redirected from the public treasury.”

But Bullock’s Department of Revenue adopted rules excluding religious schools from the program, citing Montana’s constitutional amendment that says public governments “shall not make any direct or indirect appropriation or payment from any public fund or monies” toward religious institutions.

The move enraged legislative Republicans, who declared it violated the law’s intent, and it quickly sparked a lawsuit.

When three women in Flathead County challenged a rule that cut religious schools out of a new tax credit program, it continued a trend of legal challenges to programs like it. Their children attend Stillwater Christian School in Kalispell, and they argued that they would apply for scholarships if available. 

A Flathead County district court judge told the state it had to allow donations to religious schools during the case, and Ulbricht ultimately ruled against the state.


One of the reasons that tax credit programs have gained popularity is because of their ability to withstand legal challenges, even in states that have provisions against religious spending like Montana.

It’s also been difficult for cases to get considered; challenges in other states have typically come from taxpayers who argue that their money is being misspent going toward religious institutions. However, courts have repeatedly ruled that taxpayers don’t have standing in the case, including a U.S. Supreme Court case about Arizona’s tax credit program in 2010.

“The legal dispute in Montana does raise issues that are different than other places,” said Kevin Welner, a University of Colorado professor who authored a book about tax credits in 2008.

The revenue department’s rule flipped the roles, with potential beneficiaries of a tax credit suing the state.

Cutting religious schools out of school choice funding isn’t unprecedented. Maine and Vermont both have long-running tuitioning programs, which pay for the education of students in private schools. In 1999, high courts in both states ruled that religious schools could be cut out of the programs, at least in certain circumstances.

But the U.S. Supreme Court's 5-4 decision in the Arizona case may not bode well for Montana's argument. While the court decided the case based on taxpayer standing, it also addressed appropriations in the court's opinion.

"In (the plaintiff's) view the tax credit is ... best understood as a governmental expenditure," wrote Justice Anthony Kennedy, who is widely viewed as the court's swing vote. "That is incorrect."

The opinion doesn't specifically address the idea of indirect payments, which Montana's opening salvo makes much of. The state argues that the inclusion of "indirect" makes Montana's constitutional ban on religious spending unusually strong. 

Montana's appeal also emphasizes the tax credit's one-to-one reimbursement, meaning that people get a full $150 break on a $150 donation, arguing that it lends credence to the idea that the tax credit violates the state's religious spending clause. 

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“If you’re asking if this is an area of unsettled law, the answer is yes,” Welner said. “Generally, the differences that you see are reflective of the blue-red differences we have in this country.”


Arizona passed the nation's first school choice tax credit in 1997, despite a constitutional provision nixing the use of public money for religious schools.

Similar programs are now in 18 states. More than a quarter-million students across the nation participate in a tax credit scholarship program, dwarfing the number of students who participate in more controversial voucher programs.

Welner is generally critical of tax credit programs, referring to them as "neovouchers." But he said there's little doubt that the concept of tax credits are more palatable for voters and lawmakers, though he expressed surprise that Bullock, as a Democrat, didn't veto the tax credit. 

“While vouchers tend to not poll very well, when you call them opportunity scholarships or tax credits … for a lot of people who aren’t paying close attention, it’s not understood that this is technically a voucher mechanism," he said. "People’s eyes do tend to glaze over when you start talking about tax credits and tax law.”

Welner cited a pair of cases that could indicate a shift in the Supreme Court's thinking on the issue. 

In 1997, the Supreme Court ruled that the state of Washington did not have to allow students pursuing a "degree in devotional theology" to participate in a publicly funded scholarship program. 

But earlier this year, the court ruled that a publicly funded grant program for Missouri playgrounds could not exclude schools run by a church.

In some ways, the legislature foreshadowed Montana's current case in 2013, when Republicans and Democrats sniped back and forth about the legality of a proposed tax credit program on religious grounds. That bill was eventually shot down, but Sen. Dave Lewis, a Helena Republican who termed out in 2013, predicted its return in future sessions. 

“I just think the inclusion of this issue is too important to go away," he said.

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