Lost in all the commotion over the U.S. Supreme Court’s several decisions today is another important decision with ramifications for school choice. The Georgia Supreme Court unanimously ruled in Gaddy v. Georgia Department of Revenue that plaintiffs had no standing to challenge the state’s tax-credit scholarship program because the scholarship funds are private funds, not a government expenditure:
We also reject the assertion that plaintiffs have standing because these tax credits actually amount to unconstitutional expenditures of tax revenues or public funds. The statutes that govern the Program demonstrate that only private funds, and not public revenue, are used.
The program allows donors to receive tax credits in return for contributions to qualified nonprofit scholarship organizations that help families send their children to the schools of their choice. Plaintiffs asserted that the program violated Georgia’s Blaine Amendment, which prohibits the state from giving public funds to religious schools. However, as we explained in our amicus brief, no public funds are involved. “Taxpayers choose to donate voluntarily using their own private funds and receive a tax credit for the amount of the donation; no money ever enters or leaves the treasury.” Neither does the state direct where the funds are used. “The state exercises no control over which scholarship organizations donors choose to support, which students receive scholarships, or at which schools parents choose to use the scholarships.” The Georgia Supreme Court agreed:
Individuals and corporations chose the [scholarship organizations] to which they wish to direct contributions; these private [scholarship organizations] select the student recipients of the scholarships they award; and the students and their parents decide whether to use their scholarships at religious or other private schools. The State controls none of these decisions. Nor does it control the contributed funds or the educational entities that ultimately receive the funds.
“Today’s victory has secured Georgia parents’ right to continue choosing the best education for their children,” stated Erica Smith, an attorney for the Institute for Justice, which represented scholarship parents in the Gaddy case. “This Court correctly recognized that government should promote educational opportunity and choice, not limit it as the plaintiffs proposed.”
The decision should also have implications outside of the Peach State. More than 250,000 students are using tax-credit scholarships in 17 states, and more states are likely to adopt similar programs in the years to come. However, opponents of school choice have failed to persuade any high court to block the tax credits by adopting “tax expenditure analysis,” a method of accounting that treats tax credits, deductions, and exemptions as government expenditures. Indeed, the Georgia Supreme Court joins a unanimous chorus of decisions by the U.S. Supreme Court and numerous state supreme courts, including in Arizona and Alabama, holding that tax credits are not public funds. Additionally, the Florida Supreme Court declined to hear an appeal from a lower court decision that similarly ruled that “all funds received by private schools under the [Florida Tax Credit Scholarship Program] come from private, voluntary contributions” to scholarship organizations. Likewise, the Illinois Supreme Court declined to hear a challenge to a lower court decision that tax credits do not constitute public funds. Finally, the New Hampshire Supreme Court also unanimously rejected a challenge to its tax-credit scholarship program, though it did not explicitly rule on the question of public funding. No high court has ever ruled that tax-credit scholarships constitute government expenditures.
The Institute for Justice also recently won a case against Montana’s Department of Revenue for unconstitutionally preventing families from using tax-credit scholarships at religious schools. Though the legislature had included no such limitation, the department claimed allowing families to use the scholarships at religious schools would violate the state’s Blaine Amendment. A trial court disagreed, holding that (you guessed it) private donations given in exchange for tax credits are not public expenditures.
No doubt opponents of educational choice will continue to devise creative arguments as to why the courts should halt choice programs, but it appears that the “tax expenditure” argument against tax-credit scholarship programs has run its course.
