TAX CREDITS FOR PRIVATE SCHOOL TUITION

The implications of a recent decision by the Missouri Supreme Court in Manzara v. State of Missouri,which held that a taxpayer does not have standing to challenge tax credits has far reaching implications with respect to separation of church and state issues in Missouri.

School

Church

In deciding this case, the Missouri Supreme Court relied heavily upon a recent United States Supreme Court decision that found that there was no taxpayer standing to challenge Arizona tax credits for private schools against allegations that the Arizona program violated the provisions of the United States Constitution against separation of church and state. The United States Supreme Court in a 5 to 4 decision held that tax credits, which were available to citizens of the state of Arizona to pay for school tuition, were not public expenditures; therefore, no taxpayer standing. Missouri quickly followed suit when it decided the Manzara case in a 4 to 3 decision on August 2nd of 2011, holding that tax credits were not the expenditure of public funds. Both the United States Supreme Court and the Missouri Supreme Court were sharply divided over this issue.

While the Manzara case is seemingly about taxpayer standing, simmering just below the surface is one of the great ongoing debates in our society. Think private schools, school choice and tax credits to offset the cost of tuition to private schools. Think about the fact that currently over 580 million dollars in tax credits per year – a sum estimated to be about 8% of state revenue – cannot be challenged by taxpayers. At a time when funding for public schools is withering, think about the diversion of funds from our public schools. All of this is pretty much off limits to the judicial branch because taxpayers do not have standing. This is serious stuff and we will see this played out on the Missouri stage with the judicial branch on the sidelines due to the ruling in this case.

Now to the specifics of the analysis in the Manzara case. The Missouri Supreme Court reasoned that tax credits were not expenditures because the funds never reached the state treasury. Instead, tax credits are simply a reduction in taxes owed by a citizen, which the state receives. As the Missouri Supreme Court observed, the revenue spigot is narrowed and there is less revenue in the bathtub to drain.

Missouri Supreme Court

So how does this decision impact separation of church and state under the Missouri constitution?  The Missouri Constitution is more explicit and strict than the United States Constitution with respect to separation of church and state. Put another way, the Missouri Supreme Court has observed that the wall between church and state is bigger in the Missouri Constitution than the United States Constitution.  For example, an appropriation by Missouri could not be used to fund transportation of students going to parochial schools, nor could state funds be used for a time-release program that allowed speech therapists to work with parochial students who had speech impediments.

The ruling in Manzara changes the above analysis. Article I, section 8 of the Missouri Constitution provides that no money shall be taken from the public treasury directly or indirectly in aid of a church, sect or denomination of religion. Article IX, section 8 provides that the general assembly shall not make an appropriation or pay from any public fund anything in aid of any religious creed, church or sectarian purpose or help support any school or other institution of learning controlled by any religious creed, church or sectarian denomination. Both of these sections prohibit using public funds from the treasury and would seem to fall squarely within the majority opinion in Manzara, that tax credits are not expenditures of public funds.

Still it is not quite as open and shut as it would seem. After all only three Missouri Supreme Court Justices were solidly behind the majority opinion with three Justices dissenting, leaving Justice Stith to break the tie. She reluctantly joined the majority opinion after stating that she would have called for re-argument of the standing issue if she thought it would have changed the result, while at the same time she joined the dissent on the part concluding that the tax credits were for a public purpose. Sounds confusing. Well it is, so we will have to wait and see what the next chapter will bring.

Not only may the Manzara case change the law, but it may also change the economics of funding school choice. The State of Missouri currently has a very large tax credit program involving some 53 programs estimated in 2009 to be around $580 million. The tax credit program is estimated to be about 8% of actual state revenues and is growing. These programs are quite popular although in recent years political leaders have expressed concern about the extent of the tax credit program. Tax credits also eat into the funding for public education since Missouri is required to spend 25% of its state revenues on public education. Another reason for the popularity of tax credits is that tax credits are outside the Hancock spending lid in the Missouri Constitution, so long as the tax credit does not exceed the taxpayers’ liability, thereby making the credit refundable.

The bottom line is that there are lots a competing groups fighting for tax credits as witnessed by the recent special session called by Governor Nixon to redo the tax credit policies of the state. Add one more competing interest to the mix – private schools.

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25 Responses to TAX CREDITS FOR PRIVATE SCHOOL TUITION

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