Georgia Supreme Court: Tax-credit private school scholarship program is constitutional.

A Georgia Supreme Court ruling released today preserves the state's controversial tax credit for private school scholarships, including religious schools. The high court ruled the people bringing the legal challenge lack standing to do so.

Raymond Gaddy and Georgia taxpayers sued in Fulton County Superior Court in 2014, contending it is unconstitutional to spend state tax dollars on the program because some schools that receive money are religious . The Georgia Supreme Court heard arguments in January.

Reporting on that hearing, AJC's Ty Tagami wrote:

Last year, the Fulton judge, Kimberly Esmond, dismissed all but one of Gaddy's claims, prompting his appeal. The defendant, the Georgia Department of Revenue, also appealed, but only over the judge's decision to allow a trial on a narrow issue: Gaddy's claim that the agency had failed to enforce a legal mandate prohibiting contributions for specific students.

The program works like this: Taxpayers pledge money -- up to $1,000 for an individual, $2,500 per married couple and many thousands of dollars for certain business entities -- to specific private schools and get a tax credit for the amount. The money goes indirectly to schools through nonprofit scholarship organizations that collect the donations. Taxpayers can select which school gets the money but not which student.

The outcome of the revenue agency's appeal would likely have a limited effect, but the high court's decision on Gaddy's appeal could threaten the whole program, which in 2015 provided scholarships for 13,555 students, according to the latest figures from the revenue department.

Gaddy's case revolves around a paragraph in the state constitution that prohibits use of public money to aid any church or other religious group. The tax credit program subsidizes tuition at private schools, "many of which are religious in nature and require strict adherence to religious beliefs, " using "money that would otherwise go to the state, " Gaddy's attorney, William Whitner, said, calling it a clear violation of the constitution.

A key issue for at least one of the justices, though, appeared to be whether a tax credit is the same as public money.

“Georgia’s scholarship program is one of the largest school choice programs in the nation, empowering thousands of parents each year to choose the schools that are best-suited to meet their children’s unique learning needs,” said Tim Keller, a senior attorney at the Institute for Justice. “This program has been helping families for almost 10 years and this ruling helps ensure it will continue to help numerous other families for many years to come.”

Here is the statement from the state Supreme Court:

Under an opinion by the Supreme Court of Georgia, the program that provides tax exemptions to those who contribute to scholarships for students to use at private schools, including religious schools, will remain in place.

With today’s decision, the high court has unanimously upheld a Fulton County court ruling that says taxpayers who challenged the program as unconstitutional had no standing, or right, to bring their constitutional challenge.

“Plaintiffs’ complaint fails to demonstrate that plaintiffs are injured by the program by virtue of their status as taxpayers,” Justice Robert Benham writes for the Court. “Consequently, plaintiffs’ taxpayer status fails to demonstrate a special injury to their rights so as to create standing to challenge the program.”

This high-profile case stems from a dispute between a group of taxpayers and the State over the Qualified Education Tax Credit Program (House Bill 1133, which has been amended three times, most recently in 2013). Under the K-12 tax credit scholarship program, which is managed by the state Department of Revenue, individuals may donate up to $1,000, couples up to $2,500, and corporations thousands more to “student scholarship organizations,” which are private charitable 501 (c) (3) organizations. These student scholarship organizations in turn must allocate at least 90 percent of the funds to award scholarships of up to $8,983 per student to use at qualifying private schools. The organizations are required to distribute the scholarships to students who meet certain eligibility requirements, and the parent of each recipient must endorse the award to the private school of the parents’ choice for deposit into the school’s account. In return for their donations, the contributors receive dollar-for-dollar tax exemptions on their income taxes. The annual amount of tax credits available under the program is $58 million.

Four Georgia taxpayers, including Raymond Gaddy, sued the Department of Revenue and Revenue Commissioner Lynnette Riley, arguing the program is unconstitutional because it redirects public tax funds to private religious schools. In their lawsuit, the taxpayers sought “injunctive” relief to stop the illegal use of tax funds for private schools, a “declaratory” judgment by the court declaring the program is unconstitutional, and a “writ of mandamus” to compel Riley as a public official to do her duty and revoke the status of any school scholarship organization that solicited contributions by claiming it would award a scholarship for a specific student.

The trial court ruled mostly in favor of the Department and of parents who support the program and were permitted to intervene in the lawsuit. The trial court ruled that the taxpayers lacked standing to challenge the constitutionality of the statute and that its claims for injunctive and declaratory relief were barred by the doctrine of sovereign immunity, the legal doctrine that protects the government or its departments from being sued without the State’s consent. But the court did rule the mandamus claim could go forward. The taxpayers then appealed the bulk of the ruling to the Georgia Supreme Court, while the State appealed the mandamus ruling.

In today’s opinion, the high court has upheld the trial court’s ruling regarding the taxpayers’ constitutional claims and reversed its ruling that would have allowed their mandamus claim to go forward.

“In general, to establish standing to challenge the constitutionality of a statute, a plaintiff must show actual harm in that his or her rights have been injured,” the opinion says. “Here, plaintiffs claim they have standing to challenge the constitutionality of the statutes in question because they can show injury by virtue of their status as taxpayers. They also claim standing is conferred by Georgia Code § 9-6-24. Neither assertion survives scrutiny.”

Each of the taxpayers’ allegations challenging House Bill 1133 hinges on certain assumptions, “the first one being that the grant of tax credits for student scholarships amounts to a diversion of public revenue that leaves the plaintiffs shouldering a greater portion of Georgia’s tax burden. Plaintiffs also assume that the tax credits amount to an unconstitutional expenditure of public funds because these funds actually represent tax revenue, or because the revenue department bears the costs of administratively processing these credits. But these premises are false.”

Suggesting that a tax credit from state income tax liability decreases the total revenue pool and increases the tax burden on the remaining taxpayers is “purely speculative,” the opinion says. “Further, a tax credit that funds a program that encourages attendance at private schools might, in fact, create a tax savings by relieving public schools of the burden of educating the students who chose to attend private schools.”

“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 opinion says. “The statutes that govern the program demonstrate that only private funds, and not public revenue, are used.”

House Bill 1133 lays out a scheme by which (1) donations of private funds by private individuals or entities, (2) made to non-governmental organizations to be used for scholarships to private schools, whether secular or religious, (3) may be claimed as tax credits by individual and corporate taxpayers. “The program does not involve the distribution of public funds out of the State treasury because none of the money involved in the program ever becomes the property of the State of Georgia.”

“Because each of the constitutional provisions relied upon by plaintiffs involve the expenditure of public funds, and the statutes that establish the program demonstrate that no public funds are used in the program, plaintiffs lack standing as taxpayers to assert these claims.   Plaintiffs’ complaint fails to show that they, or any taxpayers for that matter, are harmed by this program.”

These conclusions are supported by decisions from federal courts and other state courts that have considered the issue of taxpayer standing to challenge the constitutionality of similar scholarship programs, the opinion says.

Because the injunctive relief the taxpayers seek, to prevent the State from approving tax credits under the program, is based on their constitutional claims, “which we have concluded they have no standing to pursue,” the taxpayers consequently have no standing to pursue the injunctive relief, either, the opinion says.

In the cross appeal, the Department of Revenue appeals the trial court’s order denying its motion to dismiss the taxpayers’ claim for mandamus relief. In this claim, the taxpayers asked the trial court to require the Commissioner to enforce the statute that prohibits student scholarship organizations from representing that a taxpayer could make a contribution for a particular student. The trial court concluded that the taxpayers here had a case because they stated a claim upon which relief could be granted. In today’s opinion, however, “We disagree and reverse.” Here, the taxpayers “have failed to allege any clear legal right to mandamus relief,” the opinion says.

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About the Author

Maureen Downey
Maureen Downey
Maureen Downey has written editorials and opinion pieces about local, state and federal education policy since the 1990s.