Lawmakers in the Montana House have been actively debating proposed modifications to tax credit programs that aim to support public schools and provide scholarships for private schools. This debate has spanned the past two weeks.
Last year, discussions arose regarding the fair allocation of funds for the Innovative Educational Program (IEP). This program, established in 2015, aims to support K-12 public schools by directing private donations towards them and offering donors a dollar-for-dollar tax credit. In the 2021 Legislature, lawmakers decided to increase the per-donor credit limit from $150 to $200,000 and set a cap of $1 million for the total amount of credits. These changes also applied to tax credits for donations to organizations that provide scholarships to private school students in Montana.
On the public side, Montana hit that $1 million cap within five minutes on Jan. 3, 2022, and more than half of the money raised — four donations totalling $694,000 — went to a single district: Big Sky. According to data from the Montana Department of Revenue, the 2023 cap of $2 million was reached in just under 48 hours last month, with seven donations totalling $895,500 going to the Big Sky school district. On the private side, nearly half the contributions in 2022 went to a single scholarship organization, ACE Scholarships. This year, five donations to the Central Education Foundation of Silver Bow accounted for $986,340 of the total $2 million in contributions made to private school scholarships.
Democrats and Republicans this session remain split on how to address resulting concerns about disproportionality and the broader questions raised by the programs. Rep. Mark Thane, D-Missoula, suggested lowering the per-donor limit to $2,000, arguing to fellow lawmakers last month that current credit amounts not only put districts in wealthier areas at an unfair advantage but also enable donors to effectively “wipe out” their tax liability to the state. His proposal was tabled in the House Taxation Committee on Jan. 24.
Across the aisle, Rep. Sue Vinton, R-Billings, has put forth a far more complex solution. House Bill 408 would limit the total donation amount that individual districts can keep to $50,000 or 15% of their general fund budget, whichever is greater, or to 20% of the total statewide credit cap. Any excess money would be remitted to the Office of Public Instruction for distribution to schools participating in a state program that funds college- and career-centric initiatives. HB 408 also raises the total tax credit cap to $5 million for the coming tax year.
Last week, Vinton addressed her colleagues on the House floor, expressing concern about the lack of guidelines for the Innovative Educational Program. She pointed out that this has resulted in funds being disproportionately allocated to only a handful of districts, while the demand for tax credits far exceeds the current limits. Vinton argued that the proposed changes in HB 408 would effectively tackle these problems by increasing funding for public schools interested in implementing or improving work-based and individualized learning initiatives.
During the Feb. 16 debate, Thane opposed HB 408 by arguing that it failed to address a specific inequality that his previous proposal aimed to resolve. He made an effort to modify Vinton’s bill by removing a provision that permits donors to use credits from previous years towards their tax liability in future years. Thane also urged legislators to take action on another issue by demanding greater transparency in the allocation of funds for private school scholarships.
They didn’t have to wait long. Immediately after Thane’s amendment failed, Rep. Ed Stafman, D-Bozeman, rose with one of his own aimed at the private schools that enroll students who receive scholarships funded by tax-credit-eligible donations. Stafman proposed that such schools be required to administer the same standardized tests as public schools and provide OPI with a wealth of other academic information mandated in the public K-12 system. The same proposals were contained in a pair of bills Stafman introduced earlier that day to the House Taxation Committee.
Stafman expressed that if there is no accountability, it is inappropriate to use taxpayers’ money. Unfortunately, his amendment did not succeed and both his bills were postponed in committee this week.
After clearing its initial vote in the House largely along party lines, HB 408 was kicked to the House Appropriations Committee. The bill garnered pushback there too, with Rep. Jim Hamilton, D-Bozeman, echoing the same concerns Thane and Stafman had raised and calling it a “candidate for the most outrageous tax policy ever.” Two Republicans shared in the Democratic opposition to the bill, but it passed committee 14-9. HB 408 will now advance to the House floor for a final vote ahead of next week’s transmittal deadline.
