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Donors hit tax credit cap for public schools within minutes

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Montana Legislature

Lawmakers move about the house floor during a break on March 22, 2021, in the state Capitol.

Within a matter of moments earlier this week, people and businesses under a recently increased cap on the amount they could claim in tax credits by donating to schools reached the $1 million limit set by the state Legislature.

The period to claim the credit through a donation of up to $200,000 opened Monday, and reached the limit in less than six minutes, the state Department of Revenue said this week.

Ten public school districts were able to pre-approve 23 donations, from 20 people and three businesses that claimed the credits. The individuals donated $938,000 and the businesses donated $62,000 to reach the $1 million cap, the revenue department said.

In 2021, the state Legislature dramatically increased the amount a person or business could claim in a credit, moving from $150 to $200,000. The $1 million cap for total credits claimed increases in 2023 to $2 million, with provisions to increase that by 20% in later years if donations come in at 80% or greater of the limit.

Last year lawmakers also changed the existing program to allow those claiming the credits to direct them toward specific school districts  who can use the money toward innovative educational programs. Legislators also expanded terms for how the money can be spent. On the private side, money goes toward scholarship programs that students can then apply to in order to receive assistance from.

Three scholarship organizations pre-registered donations from 12 individuals. Ace Scholarships got five donations, as did St. Matthews Catholic School, and Holy Spirit Catholic School had two, according to the revenue department.

The 10 public school districts that registered donations were Big Sky School K-12; Bonner Elementary; Great Falls Elementary; Kalispell Elementary; Kalispell High School; Livingston Elementary; Montana City Elementary; Shepard Elementary; Somers Elementary; and Whitefish Elementary.

Big Sky Schools received $694,000, MTN News reported, or nearly 70% of the total amount that went toward public schools.

The district is in one of the wealthiest areas in the state. Gallatin County, where the district is located, has the lowest rate of students on free or reduced lunch in the state.

State tax law makes the identity of donors private, protected as confidential tax information.

During a November meeting, several state lawmakers expressed concern that some districts could claim the credits quickly, leaving others in the dust in terms of accessing the funding.

“The concern is that the folks that might donate to this might be in those larger school districts like Kalispell and ... some of the larger areas and that some of the smaller schools might not be able to take advantage of this to the level that might happen in some of the larger school districts,” said Sen. Jill Cohenour, an East Helena Democrat who heads the interim revenue committee, said last year. “That's where the disparity might take place.”

From 2016, the first year of the program, to 2021, the Bozeman School District saw the most funding, at $4,893, making up just over 21% of all contributions. The Great Falls School District came in second, at 14% of all contributions.

Nine districts or regions received less than $1,000, including the Kalispell School District at $428, or just 8% of what Bozeman received.

“There’s quite a disparity,” state Sen. Shannon O’Brien, a Democrat from Missoula, said during the November committee meeting. “'I’m looking at $143 total in region five (Cascade, Fergus, Golden Valley, Judith Basin, Musselshell, Petroleum and Wheatland counties) and I'm looking at $3,135 in region 11 (Chouteau, Glacier, Lewis and Clark, Liberty, Pondera, Teton and Toole counties). And then Great Falls (School District) received $3,278.”

During the November meeting, Bob Story,  executive director of the Montana Taxpayers Association, predicted the issue of equity and access to education programs will “eventually raise its head in a lawsuit sometime and the state will have to deal with that.”

One lawmaker back in November said he believed the donations will mostly go to small districts around the state.

“I think the districts that will benefit the most are the rural districts, where you have rural benefactors ... ,” state Sen. Brian Hoven, a Great Falls Republican, said. “I think we’re going to see the rural districts benefit more than anyone else.”

And while some rural districts like Montana City Elementary received $55,000, Shepherd Elementary saw $50,000, Somers Elementary got $5,000 and Bonner got $1,000, MTN reported, by far most money went to Big Sky or other more urban districts.

Republican state Rep. Seth Berglee, of Joliet, said in an interview this week he wasn’t surprised by how quickly the public school cap was reached. He pointed to changes made by lawmakers to raise the limit an individual or business could claim, as well as the ability to direct money to a specific school, as pushing the rush.

Berglee said while he didn’t fully support a late change to his legislation that allowed for schools to use money on an expanded list of things, he said he still thinks schools getting more money is a good outcome.

The termed-out lawmaker said he’d also like to see the program revisited in the next legislative session to narrow what the money for public schools can go toward. Initially it could only be used for new innovation programs, which Berglee said would help underachieving students.

Opening up the spending options, he said, prompted some districts to organize giving campaigns around the credit.

“My intent with the program was to help kids that were struggling,” Berglee said, adding that the scholarship side of the program is working as he intended. It did not reach the cap.

“Still, it’s not really a negative that schools got funded and there’s a tax credit,” Berglee said. “That money was going to go to the government somewhere else. In the spirit of it, I would like to see them making adjustments on the public side mostly.”

While a few last-minute rule changes by the Department of Revenue made it easier to track exactly when a contribution was made, some schools reported frustrations with the rapid pace, the Montana Free Press reported this week.

From the state revenue department's perspective, "the process and the donations portal worked seamlessly to implement what the Montana Legislature provided for in statute," a spokesperson said this week.

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