BEFORE THE Department of REVENUE
OF THE STATE OF MONTANA
In the matter of the adoption of New Rules I through III pertaining to tax credits for contributions to qualified education providers and student scholarship organizations
NOTICE OF ADOPTION
TO: All Concerned Persons
1. On October 15, 2015, the Department of Revenue published MAR Notice No. 42-2-939 pertaining to the public hearing on the proposed adoption of the above-stated rules at page 1682 of the 2015 Montana Administrative Register, Issue Number 19.
2. On November 5, 2015, a public hearing was held to consider the proposed adoption. Senator Llew Jones; Eric Feaver, MEA-MDT; Gina Satterfield; Bob Vogel, Montana School Boards Association; Pat Audet, Associate Director, School Administrators of Montana; Dianne Burke, Executive Director, Montana Quality Education Coalition; Erica Smith, Attorney, Institute for Justice; Wen Fa, Attorney, Pacific Legal Foundation, Association of Christian Schools International, Foothills Christian Community School, and Helena Christian School; Bob Story, Executive Director, Montana Taxpayers Association; Jeff Laszloffy, President/CEO, Montana Family Foundation; Brent Mead, Executive Director, Montana Policy Institute; Matt Brower, Executive Director, Montana Catholic Conference; Jake Penwell, Montana State Director, ACE Scholarships; Michael Chartier, State Programs and Government Relations Director, Friedman Foundation for Educational Choice; and Senator Kris Hansen appeared and testified at the hearing. Other members of the public attended the hearing but did not testify.
The department also received written comments from Senator Jones; Mr. Mead; Mr. Fa with Ethan Blevins and Joshua Thompson, Pacific Legal Foundation; Amrita Singh, Americans United for Separation of Church and State; Patrick Elliott, Freedom From Religion Foundation; Hilary Bernstein, Regional Director, Anti-Defamation League; Dale Schowengerdt, Solicitor General, Montana Department of Justice; Kimberlee Colby, Director, Center for Law and Religious Freedom with Rev. Dr. Matthew Harrison, President, Lutheran Church-Missouri Synod, and Dr. Keith Wiebe, President, The American Association of Christian Schools; Michael Sheridan; Robert Filipovich; Verne Beffert; Paulette Hutcheon; Barbara Ross; Scott Rosenzweig; Kenneth Younger; James Paugh; Gary Lusin; Chuck Halter; LindieAnn; Gayle Venturelli; RoseAnn Aronsen; Kiersten Alton; Chris Barndt; Dan Bos; J. R. Brannon; Jacqualine Brannon; Ann Brigham; Marjorie Centifanto; Patrick De Jong; Beckie Evins; Liz Flikkema; Dennis Hardin; Jim Holmquist; Roy Keim; Ardie Keim; Char Klein; Mark Klein; Mike Lang; Shilloy Lowe; Marlene Newton; Eric Olsen; Martin O'Neil; Curtis Owen; Joel Pattengale; Christine Pummel; Vonnie Roller; Hyla Thompson; Nancy Watson; Diane Welna; Marylou Sytsma; Laura Rhodes; Matt Regier; Jeri Miller; Michael Kassity; James Freyholtz; Margaret Foster; Willeen Erpenbach; Helen Emmelkamp; Patricia Earnest; Faith DeWaay; Kimberly Adams; Pam Birkeland, Madison County Supt. of Schools; Rick Duncan, Supt. Powell County High School District; Daniel Grabowska, Park County Schools Supt.; Steve Engebretson, Dawson County Supt. of Schools; Teri Harris, Fromberg Public School Supt.; Dr. Glen Johnson, Dillon Elementary Schools Supt.; Dan Kimzey, Hamilton High School Principal; Brenda Krueger, Ruder Elementary Principal, Columbia Falls; Steve Love, Charlo Schools Supt.; Cathy Sessions, Teton County Supt. of Schools; Jule Walker, Plevna Schools Supt.; Christine Bilant, Federal Projects Director, Kalispell Public Schools; and Trevor Utter, Eureka Middle School Principal.
3. The department adopts New Rule I (42.4.802) and New Rule III (42.4.804) as proposed.
4. Based on the comments received and upon further review, the department adopts New Rule II (42.4.803), as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:
NEW RULE II (42.4.803) STUDENT SCHOLARSHIP ORGANIZATION REQUIREMENTS (1) An organization seeking approval as a student scholarship organization shall complete and submit to the department an online application prior to accepting donations. This application
will be is located on the department's web site at revenue.mt.gov svc.mt.gov/dor/educationdonations. the The student scholarship organization shall include the following information on the application:
(a) remains as proposed.
(b) the student scholarship organization's representative's name, title, phone number, and e-mail address; and
(c) a list of all qualified education providers who may receive scholarships from the student scholarship organization on behalf of students
(d) any other necessary information.
(2) and (3) remain as proposed.
5. The department has thoroughly considered the comments and testimony received. A summary of the comments and the department's responses are as follows:
COMMENT 1: Eric Feaver, MEA-MFT, testified that Senate Bill (SB) 410, L. 2015, states that the tax credit must be administered in compliance with the provisions of Articles V and X of the Montana Constitution and the department drafted the proposed new rules with reference to the Constitution pursuant to SB 410. Mr. Feaver stated that he commends the department for interpreting SB 410 as written.
RESPONSE 1: The department appreciates Mr. Feaver's comments in this matter.
COMMENT 2: Gina Satterfield commented that if private schools want to control their curriculum they need to avoid allowing government involvement in their school and that, therefore, she is a proponent of the proposed new rules prohibiting some private institutions from being identified as a qualified education provider.
RESPONSE 2: The department appreciates Ms. Satterfield's testimony in this matter.
COMMENT 3: Bob Vogel, Montana School Boards Association (MTSBA), concurred with Mr. Feaver's comments. Mr. Vogel stated that MTSBA supports the adoption of the proposed new rules. Mr. Vogel commented that MTSBA believes the proposed new rules properly implement SB 410, Section 7, which requires SB 410 to be administered in compliance with the provisions of Articles V and X of the Montana Constitution. Mr. Vogel stated that MTSBA's principles and guidelines require it to honor the intent of the Montana Constitution, including the prohibition of direct or indirect sectarian aid. Mr. Vogel stated that the clarity of the language of Articles V and X of the Montana Constitution is evident by considering the deliberations of the Montana Constitutional Convention. Mr. Vogel provided a transcript of the Montana Constitutional Convention. Mr. Vogel also pointed out that SB 410, Section 30, contains a severability clause which prevents the entirety of SB 410 from being ruled invalid if a portion of it is ruled invalid.
RESPONSE 3: The department appreciates Mr. Vogel's comment, and specifically the comments that describe the constitutional requirements that the department must follow.
COMMENT 4: Pat Audet, Associate Director, School Administrators of Montana (SAM), concurred with Mr. Feaver's comments. Mr. Audet testified that SAM has adopted resolutions strongly opposing any public means of funding to nonpublic private religious schools, including tax credits. Mr. Audet stated that SAM gives its full support to the department's proposed new rules.
RESPONSE 4: The department appreciates Mr. Audet's comments in this matter.
COMMENT 5: Dianne Burke, Executive Director, Montana Quality Education Coalition, testified in support of the department's adoption of the proposed new rules in accordance with the provisions of the Montana Constitution. Ms. Burke further commented that the coalition is comprised of public school districts, educational organizations, Montana school administrators, rural educators, the MTSBA, the MEA-MFT, and school business officials.
RESPONSE 5: The department appreciates Ms. Burke's comments in this matter.
COMMENT 6: Llew Jones, State Senator and primary sponsor of SB 410, L. 2015, testified in opposition to the proposed new rules. Senator Jones stated that the department has failed to follow legislative intent and, further, in its justification the department acknowledges that it is not following the legislative intent. He stated that the structure of the three branches of government -- legislative, executive, and judicial -- does not empower an agency to ignore the legislative intent and, in this instance, in not vetoing SB 410 the executive gave a nod of approval to the legislation as written. Any question of constitutionality is to be decided by the judicial branch of government.
Senator Jones submitted 52 letters sent by Montana legislators to Chairman Thomas of the Revenue and Transportation Interim Committee in support of Senator Jones' position.
RESPONSE 6: The department appreciates Senator Jones' time in this manner and understands his position. The department does not agree there is a circumvention of the legislative branch's authority. The department notes that the bill itself directs the department to administer the new law in a constitutional manner, drawing attention to specific portions of the Montana Constitution. In the department's opinion the tax credit is at the very least an indirect payment, and therefore may not be made available to sectarian schools.
COMMENT 7: Senator Jones stated that there was extensive discussion regarding the constitutionality of SB 410 in the final House Appropriations hearing. In support of this statement, he played recorded excerpts from that committee hearing as part of his testimony at the rule hearing.
Following the submission of the recording, Senator Jones stated that there was extensive discussion regarding the constitutionality of SB 410. He further stated that he disagrees with the department's assertion that the unconstitutionality of SB 410, as passed, was a foregone conclusion if intent was followed.
Senator Jones also clarified that his references to "all students" included all public and private school students. Senator Jones further stated SB 410 was intended to offer enhanced student opportunity for all students.
RESPONSE 7: The department applauds Senator Jones' intention to enhance education opportunities; however, the opportunities as the bill states must abide by the constitutional requirements.
COMMENT 8: Senator Jones stated that it has always been his intention that the provisions of SB 410 be constitutional. He further commented that, ultimately, this question will be decided by the judicial branch. He reiterated that it is in fact the responsibility of the judicial branch to make that determination and that the department is acting outside the scope of its authority by choosing not to follow legislative intent and by making a constitutional determination at the agency rulemaking level.
RESPONSE 8: The department does not agree that the proposed rulemaking exceeds the department's authority. Rather, the proposed rulemaking follows the plain language of the bill and the instructions of the Legislature requiring the implementing agency to abide by the Montana Constitution. The department agrees that the courts will ultimately decide the constitutional questions at issue, but the department also has responsibilities to follow the mandates of the Montana Constitution and is doing so with the rules as proposed.
COMMENT 9: With regard to proposed New Rule I, Erica Smith, attorney with the Institute for Justice, testified that the department lacks authority to adopt this rule as it imposes requirements on the scholarship program not contemplated by the Legislature.
Ms. Smith stated that the constitutional provisions relied on by the department apply only to public appropriation and tax credits are not public appropriations, and referenced various judicial venues which have supported this conclusion.
Ms. Smith further stated that the department's incorrect interpretation regarding the proposed new rule jeopardizes other Montana tax credit programs that allow donations to religious groups such as college contribution credits, qualified endowment credits, the dependent care assistant credit, and the elderly care credit.
Ms. Smith also stated that proposed New Rule I violates clauses of the U.S. Constitution relating to free exercise, establishment, and equal protection, and discriminates against religious families.
RESPONSE 9: The department thanks Ms. Smith and the Institute for Justice for contributing to this rulemaking process. The department is acting within its authority to propose these rules implementing the statute. Senate Bill 410, Section 17, provides specific rulemaking authority to the department, stating "The department may adopt rules, prepare forms, and maintain records that are necessary to implement and administer sections [7 through 17]." Section 7 (15-30-3101, MCA), in particular, states that "The tax credit for taxpayers donations under [sections 7 through 17] must be administered in compliance with Article V, section 11(5) and Article X, section 6 of the Montana constitution." The department's proposed rule follows these legislative instructions. The tax credits here are unique to donations to private schools and are limited by these two specific constitutional provisions, which distinguishes this tax credit from other allowable tax credits.
COMMENT 10: Wen Fa, attorney with the Pacific Legal Foundation, testified on behalf of the Association of Christian Schools International, Foothills Christian Community School, and Helena Christian School. Mr. Fa stated that it is his conclusion that the proposed new rules violate the First and Fourteenth Amendments of the U.S. Constitution because the proposed new rules overtly discriminate against religion. Furthermore, Mr. Fa concluded that the proposed new rules do not follow the intent of the Legislature. Mr. Fa presented statistics relating to private and religious school enrollments and the percentage of students who would be ineligible for the scholarships, as well as how the proposed rules would prevent many students who attend Montana high schools from being eligible for the scholarships. Mr. Fa further stated that the restrictions in the proposed new rules interfere with an individual's right to choose what school to attend and are contradictory to the intent of the Legislature.
RESPONSE 10: The department thanks Mr. Fa and the Pacific Legal Foundation for contributing to this rulemaking process. The department does not agree that the proposed rules violate the U.S. Constitution. The rules follow the instructions of the Legislature to implement the bill in accordance with the Montana Constitution. Additionally, the proposed rules do not interfere with an individual's right to choose to attend a particular school.
COMMENT 11: Jeff Laszloffy, President/CEO, Montana Family Foundation, offered an overview of school choice legislation in other states and in Montana. Mr. Laszloffy stated similar arguments as previous opponents' testimony that the department is acting outside of its rulemaking authority by making a determination of constitutionality and that this question should be determined by the judicial branch, not an agency.
Mr. Laszloffy asked the department to respond as to who in the department participated in the decision to exclude sectarian schools. Were the Governor's Office, Office of Public Instruction, or the teachers' union involved?
RESPONSE 11: The department thanks Mr. Laszloffy for his comments, but disagrees with his assessment of the proposed rulemaking. The department, as part of the executive branch, has consulted with the Governor's office regarding the department's proposed rules. The Office of Public Instruction and the teachers' unions were involved in the legislative process also.
COMMENT 12: Kris Hansen, State Senator, testified as an opponent to the proposed new rules. Senator Hansen stated that in addition to the testimony already received, the department has added additional language to the qualified education provider definition that is not supported by statute and that a rulemaking agency cannot add to or delete from a definition adopted by the Legislature.
Senator Hansen stated that the department's statement of reasonable necessity for proposed New Rule I is inadequate and does not clearly state a reasonable necessity. It states only that the law says you have to follow these two constitution sections, which prohibit a direct or indirect appropriation or payment from a public fund, which is just restating the Montana Constitution. It is not providing a statement of reasonable necessity for the implementation of the rule.
RESPONSE 12: The department thanks Senator Hansen for her attendance at the hearing and for her comments. However, the department's reasonable necessity sufficiently indicated the purpose of the rule. The department's decision to propose New Rule I is predicated on implementing SB 410 in compliance with Section 7 (15-30-3101, MCA) of the bill and the additional overall requirement that all laws administered by the department must meet the requirements of the Montana Constitution.
COMMENT 13: Senator Hansen commented that the department and the proponents of the rule refer to or emphasize indirect appropriation or indirect payment and she is not sure how the department feels this is an indirect appropriation or an indirect payment. She further commented that this is not a correct understanding, the tax credit is not an indirect appropriation or payment, and the Legislature clearly did not intend to exclude sectarian education. In summary, Senator Hansen stated that proposed New Rule I should be deleted in its entirety.
RESPONSE 13: Art. V, Section 11(5) and Art. X, § 6, of the Montana Constitution, regarding "indirect payment or appropriation" is very broad. The department is following the intent of the drafters of the Montana Constitution, intending this phrase in particular to require exclusion of such direct or indirect monetary benefits as targeted tax credits.
COMMENT 14: Brent Mead, Executive Director, Montana Policy Institute, commented that he agrees with the previous testimony that the department did not follow the legislative intent when preparing the proposed new rules and did not follow the Montana Administrative Procedures Act (MAPA) when it failed to take the primary sponsor's comments into consideration. He stated that if the executive branch had issues with SB 410 it should have been addressed through the use of a veto.
RESPONSE 14: The department thanks Mr. Mead for his time in this matter. The department's notice of hearing, identification of the proposed rules, consideration of all comments, including the bill sponsor's, and ultimately the rule hearing process are in compliance with MAPA.
COMMENT 15: Matt Brower, Executive Director, Montana Catholic Conference, testified on behalf of the Roman Catholic Church in Montana. Mr. Brower offered statistics relating to Catholic schools across the state and the students who attend those schools. He stated he agrees with previous testimony that tax credits are not appropriations, that scholarship funds do not constitute public money, and that the department is improperly excluding religiously affiliated schools from the definition of qualified education provider.
RESPONSE 15: The department thanks Mr. Brower and the Montana Catholic Conference for its comments during the hearing. The department believes Mr. Bower's comments have been addressed in the responses to Comments 6, 9, and 13.
COMMENT 16: Michael Chartier, State Programs and Government Relations Director, Friedman Foundation for Educational Choice, testified as an opponent to the proposed new rules, stating that they are arbitrary and capricious and the authority to determine constitutionality rests with the judiciary. Mr. Chartier also stated that religious schools should not be excluded by the proposed new rules because the vast majority of Montana private schools are religious and a parent's decision on the educational environment for their children would be undercut.
RESPONSE 16: The department thanks Mr. Chartier for his comments during the proceedings. The rules as proposed do not interfere with a parent's choice as to what school their child will attend. With respect to the remaining comments by Mr. Chartier, these have been addressed in the department's response to Comment 8.
COMMENT 17: Jake Penwell, Montana State Director, ACE Scholarships, testified as an opponent to the definition of a qualified education provider as set out in proposed New Rule I. Mr. Penwell also offered information regarding school choice in Montana and the scholarship program operated by ACE Scholarships in Montana, which currently offer 275 scholarships to Montana students. Mr. Penwell also provided statistics relating to private school enrollment in Montana.
RESPONSE 17: The department thanks Mr. Penwell and Ace Scholarships for their participation in the implementation of SB 410 and for the statistical testimony.
COMMENT 18: Bob Story, Executive Director, Montana Taxpayers Association, testified that in addition to the comments already offered in opposition to the proposed new rules, the statute already defines a qualified education provider and the only exclusions are public schools and home schools. He stated that statutes are interpreted plainly with a prohibition to inserting what was omitted, or omitting what was inserted. He stated that only the Legislature can make a change to the definition. Mr. Story further stated that he agrees that it is up to the judiciary to rule on constitutionality, not the rulemaking agency.
RESPONSE 18: The department thanks Mr. Story and the Montana Taxpayers Association for their comments on this rulemaking proposal. While the department generally agrees with the statements that statutes are to be interpreted plainly, SB 410 has specific legislative directives to follow the Montana Constitution, which the department is following with its proposed new rules. Any direct or indirect appropriation or payment to a sectarian entity cannot exist and therefore a sectarian institution as it relates to the tax credit is not allowable.
COMMENT 19: Senator Hansen thanked the department's staff for the time they have spent with her in terms of talking about how the legislation will be implemented once it is declared constitutional, which she commented she hopes is sooner rather than later. She further commented that she thinks the department is really working hard on making the legislation operational. It is the constitutional question that needs to be decided and she commented that she does not believe that the department is the place for that decision to be made.
RESPONSE 19: The department thanks Senator Hansen for her comments.
COMMENT 20: Mr. Filipovich thanked the department for its work in preparing the proposed new rules. Mr. Filipovich commented that the tax credit in SB 410 is already provided in Montana's charitable giving and tax credit laws. Mr. Filipovich commented that the definition of qualified education provider (QEP) is vague and could be manipulated to eventually allow the tax credit to home schools. He also commented that the statement: "A nationally recognized standardized assessment test or criterion referenced test" is vague and that these terms, unless more specifically defined, may not be readily recognized by the average citizen.
Mr. Filipovich also stated that that there should be more detail in the definition of student scholarship organizations (SSO), such as: must the SSO be located in Montana; must the QEP be located in Montana; can a QEP also be a SSO; or questions regarding interest and reporting by a SSO.
RESPONSE 20: The department thanks Mr. Filipovich for his suggestions regarding the possible manipulation of the tax credits and other issues in SB 410.
Many of Mr. Filipovich's statements are questioning the language in the statutes, which would require legislative change. Therefore, the department is not commenting on his statements here.
The department has written proposed New Rule II to verify that the SSOs and QEPs meet their statutory requirements.
COMMENT 21: Ms. Bernstein stated her organization's support for the proposed new rules and urged the department to adopt the rules, thereby ensuring that the law complies with the Montana Constitution. Ms. Bernstein explained that the Anti-Defamation League (ADL) is a leading civil rights and human relations organization dedicated to combating anti-Semitism and all forms of bigotry, defending democratic ideals, and securing justice and fair treatment for all. The ADL is in agreement with the department's analysis that proposed New Rule I is necessary in order for the tax credit scheme to conform to the constitutional prohibition of direct or indirect appropriations or payment from any public fund for any sectarian purpose.
In support of this position, Ms. Bernstein cites Lockey v. Davey, 540 U.S. 712 (2004), wherein the U.S. Supreme Court held that it was permissible for the State of Washington to exclude the study of theology from an otherwise inclusive state-funded scholarship aid program. The court determined that the program was not presumptively unconstitutional, even though the program facially discriminated with respect to religion. Rather, the Court held that Washington had merely chosen not to fund a distinct category of instruction. Ms. Bernstein stated that here the department makes a similar choice with respect to tax credits in order to comply with the Montana Constitution.
RESPONSE 21: The department thanks Ms. Bernstein for her comments.
COMMENT 22: Mr. Elliott commented and thanked the department for the proposed new rules and for its defense of the Constitutions of the United States and Montana.
Mr. Elliot called attention to the Colorado Supreme Court which recently struck down an effort to give taxpayer-funded scholarships to students attending private religious schools. Taxpayers for Pub. Educ. v. Douglas Cnty. Sch. Dist., 2015 CO 50, 351 P.3d 461 (1960). Mr. Elliott also cited to Lockey, as well as several other court cases, in support of the provisions in the proposed new rules that limit the definition of qualified education provider to only those types of organizations that may receive public subsidies.
RESPONSE 22: The department thanks Mr. Elliot for his comments on the propriety of the proposed rules.
COMMENT 23: Ms. Singh submitted comments in support of proposed New Rule I. Ms. Singh stated that if the proposed rule is not adopted as written, the state will forego tax dollars if the funds are instead provided to a scholarship organization that, in turn, provides the funds to a private school for student tuition. This would create a private school voucher program.
Ms. Singh further stated that 15-30-3102, MCA (2015), requires the tuition tax credit program be administered in compliance with Articles V and X of the Montana Constitution. These provisions of the Constitution prohibit the direct or indirect appropriations or payment from any public fund to any sectarian or religious purpose. Accordingly, the proposed new rule properly limits the definition of a quality education provider.
Ms. Singh stated that tuition tax credits, at a minimum, constitute an indirect appropriation and may not flow to private religious schools. There is no meaningful difference between a tax credit and direct government reimbursement of private and religious schools. She further stated that when the government grants a tax benefit, it foregoes income, and without the provisions of the proposed new rule, it may indirectly aid a private religious school.
RESPONSE 23: The department thanks Ms. Singh for her comments.
COMMENT 24: Ms. Singh further commented that the opponents to proposed New Rule I claim that other states with similar constitutional provisions have tax credit programs that have survived constitutional challenges. However, she stated that the constitutions in those states that have upheld tuition tax credits do not contain a prohibition on indirect appropriation or aid to sectarian institutions, citing to the Arizona, Illinois, and Minnesota Constitutions.
RESPONSE 24: The department thanks Ms. Singh for her comments.
COMMENT 25: Ms. Singh further commented that religious schools can use religious hiring criteria. If religious schools were to receive the state tuition tax credit they should no longer be able to discriminate in hiring, as the U.S. Constitution does not permit the state to aid discrimination.
RESPONSE 25: The department thanks Ms. Singh for her comments.
COMMENT 26: The department received written comments from several citizens expressing their support of proposed New Rule I and collectively stating that the department is correct in its conclusion that the Montana Constitution does not permit the proposed tax credit for donations to sectarian schools.
Ms. Ross commented that public funds may not be used for religious purposes.
Mr. Rosenzweig commented that Montana has a great constitution and expressed his appreciation for Montana's public servants.
Mr. Younger commented that tax dollars should not and cannot be used to support religion.
Mr. Paugh commented that he objects to the entire SB 410 and states that he considers this legislation to be an attempt to rewrite Montana's Constitution.
Mr. Lusin expressed his strong support for the proposed new rules, and in particular the rule regarding qualified education providers and student scholarship organizations. He stated that the new rule is critical as written in order to assure that contributions for educational purposes be given to people and organizations highly qualified to teach and provide education to Montana's children. Mr. Lusin stated he does support the tax credit, but only to those qualified.
Mr. Hatler expressed his support for the proposed new rules and commented that the government should keep out of religion and religion should keep out of government.
Mr. Beffert expressed support for proposed New Rule I, stating that the proposed new rule fully complies with Articles V and X of the Montana Constitution.
RESPONSE 26: The department thanks Ms. Ross, Mr. Rosenzweig, Mr. Younger, Mr. Paugh, Mr. Lusin, Mr. Hatler, and Mr. Beffert for their comments.
COMMENT 27: The department received written comments from multiple public school administrators. Collectively, the administrators expressed their support for proposed New Rule I, stating that the proposed new rule properly adheres to the provisions of Articles V and X of the Montana Constitution by prohibiting public funds or monies being used to aid or fund sectarian schools.
Those administrators commenting were Ms. Birkeland, Mr. Duncan, Mr. Grabowska, Mr. Engebretson, Ms. Harris, Dr. Johnson, Mr. Kimzey, Ms. Krueger, Mr. Love, Ms. Sessions, Ms. Walker, Ms. Bilant, and Mr. Utter.
RESPONSE 27: The department appreciates these comments from the public school administrators and thanks Ms. Birkeland, Mr. Duncan, Mr. Grabowska, Mr. Engebretson, Ms. Harris, Dr. Johnson, Mr. Kimzey, Ms. Krueger, Mr. Love, Ms. Sessions, Ms. Walker, Ms. Bilant, and Mr. Utter for providing them.
COMMENT 28: Mr. Fa commented that the department did not follow legislative intent when it excluded sectarian schools from the definition of "qualified education provider." As stated in Bell v. Dep't of Licensing, 182 Mont. 21 (1976), an administrative rule cannot "engraft additional and contradictory requirements on the statute." Bell at p. 23. Nor can it add "noncontradictory requirements on the statute which were not envisioned by the legislature." Id. The department's proposed new rule seeks to add a new requirement to the eligibility criteria that has no relationship to the Legislature's criteria.
Mr. Mead also commented that the department's definition of "qualified education provider" does not follow the legislative intent and that by not taking the opportunity to address its concerns through an amendatory veto by the Governor, rather than through the rulemaking process, the department is in violation of MAPA. Mr. Mead stated the department is now violating the Montana Constitution by using powers properly belonging to the Legislature and the Judiciary.
Mr. Sheridan presented comments supporting those made by Mr. Fa and Mr. Mead regarding the definition of "qualified education provider."
RESPONSE 28: The department's proposed rule does not seek to add new language, but provides for implementation of the statute, in compliance with the directive of the Legislature and the Montana Constitution. Further, the department disagrees that its proposed rule defining qualified educator is contrary to 15-30-3102, MCA, but rather the proposed rule follows the legislative intent and plain language as described in 15-30-3101, MCA. The Governor could not have provided an amendatory veto in that he did not receive the bill until after the Legislature had adjourned.
COMMENT 29: Mr. Fa commented that Montana statute states that student scholarship organizations "may not restrict or reserve scholarships for use at a particular education provider or any particular type of education provider." Section 15-30-3103(b), MCA. The department must disqualify organizations that violate this nondiscrimination clause, but the department would demand discrimination against religiously affiliated education providers through proposed New Rule I.
RESPONSE 29: The department's rules do not violate the nondiscrimination clause; rather, its actions follow the Montana Constitution.
COMMENT 30: Mr. Fa commented that proposed New Rule I violates the Free Exercise Clause and the Equal Protection Clause of the U.S. Constitution by prohibiting the free exercise of religion.
The right to free exercise means that government cannot withhold benefits because of religious decisions. Any law burdening religious practice must be justified by a compelling governmental interest that is narrowly tailored to advance that interest. Sherbert v. Verner, 374 U.S. 398 (1963). This proposed new rule cannot satisfy that strict standard.
The proposed new rule violates the Equal Protection Clause by discriminating against religious families by blocking access to private charitable help based on their choice of a religious school. A law that discriminates based on religion is unconstitutional unless "it is justified by a compelling interest that is narrowly tailored to advance that interest." Church of Lukumi Babalu Aye, Inc. v. City of Hialeah, 508 U.S. 530, 533 (1993). Meddling with the flow of private tuition dollars to schools on the basis of religious affiliation serves no compelling government interest.
Ms. Colby submitted comments supporting Mr. Fa's comments regarding the violation of the Free Exercise Clause and Equal Protection Clause.
Mr. Sheridan also submitted comments supporting Mr. Fa's comments regarding the violation of the Equal Protection Clause.
RESPONSE 30: The department disagrees with Mr. Fa's conclusions. The rule does not prohibit the free exercise of religion. The proposed rule neither withholds benefits from any individual or group, nor burdens religious practice. As proposed, the rule follows the Montana Constitution by disallowing indirect appropriations or payments to sectarian QEDs.
COMMENT 31: Ms. Colby commented that in addition to the violations set out in Mr. Fa's comments, the proposed new rule also discriminates against religiously affiliated institutions, and violates the U.S. Constitution's Establishment Cause and Free Speech Clause. Lemon v. Kurtzman, 403 U.S. 602, 612-14 (1971), held in part that for a law or regulation statute to satisfy the Establishment Clause it must first have a secular legislative purpose, and second, its principal or primary effect must be one that neither advances nor inhibits religion. The proposed rule violates this test because its primary effect would be to inhibit religious practice.
Ms. Colby further commented that the proposed rule violates the Free Speech Clause because it discriminates against religious viewpoints from which schools provide education. Ms. Colby commented that the proposed rule not only singles out schools that have a religious affiliation, it also applies to schools even if they are not affiliated with any church, sect, or denomination if they are accredited by a faith-based organization. This is religious viewpoint discrimination and is unconstitutional.
RESPONSE 31: The rules as proposed do not interfere in any way with religiously affiliated institutions or inhibit the advancement of religious viewpoints. The religious-based organizations can continue to teach as they have in the past regardless of the proposed rules as written.
COMMENT 32: Mr. Fa commented that the U.S. Supreme Court has held that dollars donated through tax credit programs are not public funds and the department has no legitimate interest in preventing students from accessing private dollars if they choose to attend a religious school. Arizona Christian Sch. Tuition Org. v. Winn, 131 S. Ct. 1436 (2011).
RESPONSE 32: The department has responded to these same concerns in its responses to Comments 6, 9, 13, and 18.
COMMENT 33: Mr. Fa additionally commented that the proposed rule violates the Establishment Clause of the U.S. Constitution by dictating that privately donated scholarship money cannot go to students who want to attend a religious school. This Clause prohibits government from making adherence to a religion relevant in any way to a person's standing in the political community. Lynch v. Donnelly, 465 U.S. 668, 687 (1984) (O'Connor, J., concurring). Under this Clause, governments may not treat religions on a lesser footing than other groups and may not dictate who gets privately donated dollars based on their religion.
RESPONSE 33: The department disagrees with Mr. Fa's conclusion that the department is dictating who can receive privately donated dollars or commenting on a person's standing in the community. The department is following the limits of appropriations or payments of public funds to sectarian schools or QEDs as is required in the Montana Constitution and as provided in responses to Comments 6, 9, 13, and 18.
COMMENT 34: Ms. Colby commented that numerous courts have determined that a tax credit is not an appropriation or payment; it is a reduction in a taxpayer's liability. The tax credit does not involve public funds or monies and does not provide aid to religious schools, it promotes education by providing scholarships to students who may or may not choose to attend a religiously affiliated private school. See, e.g., Walz v. Tax Comm'n, 397 U.S. 664 (1970); Kotterman v. Killian, 972 P.2d 606 (Ariz. 1999); Arizona Christian School Tuition Org. v. Winn, 131 S. Ct. 1436 (2011).
Mr. Schowengerdt offered comments in agreement with Ms. Colby's statements.
Mr. Sheridan also commented that the proposed tax credit is not an appropriation and does not expend public funds and, therefore, is not unconstitutional. He further commented that a tax credit is not a spending of public funds, but rather permits a taxpayer to retain money that rightfully belongs to the taxpayer.
RESPONSE 34: The department thanks Ms. Colby, Mr. Schowengerdt, and Mr. Sheridan for their comments. The department has provided a response to these concerns in its responses to Comments 6, 9, 13, and 18.
COMMENT 35: Mr. Schowengerdt stated that the Montana Department of Justice does not believe that proposed New Rule I is authorized or required by the Montana Constitution and would put Montana's Constitution in conflict with the U.S. Constitution. Mr. Schowengerdt concluded that the proposed new rule would likely be held unconstitutional because it categorically excludes religious entities from an otherwise neutral benefits program without sufficient reason. Colorado Christian Univ. v. Weaver, 534 F.3d 1245, 1255 (10th Cir. 2008); see also Badger Catholic, Inc. v. Walsh, 620 F.3d 775, 780 (7th Cir. 2010); Church of Lukumi Babalu Aye v. City of Hialeah, 508 U.S. 520, 532 (1993); Burlington N. R.R. v. Ford, 504 U.S. 648, 651 (1992); Montana State Welfare Bd. v. Lutheran Social Servs., 156 Mont. 381 (1971). The Department of Justice does not believe that such a constitutional challenge would be defensible in federal court.
RESPONSE 35: The department does not agree that proposed New Rule I puts the Montana Constitution in conflict with the U.S. Constitution. As proposed, the rule does not exclude religious entities from neutral benefits, but limits the donations based on the language of the Montana Constitution.
COMMENT 36: Mr. Schowengerdt also stated that the department does not have the authority to adopt proposed New Rule I because the tax credit is not a direct or indirect appropriation by the state to a religious entity under Montana law.
Mr. Schowengerdt cited to the First Judicial District Court decision of MEA-MFT v. McCulloch, 2012 Mont. Dist. LEXIS 20, in support of his argument. That decision held that tax credits are not an appropriation because they do not spend money from the State treasury. The District Court reasoned that the money, whether in the form of a tax credit or tax refund, is not set aside for a public purpose. Rather, the money is a tax refund or credit that a taxpayer may or may not claim. In the case of a credit, it is money that was never in the general fund, and in the case of refund, it would be money that the state is not entitled to keep. Id.
Also cited by Mr. Schowengerdt is Montana State Welfare Bd. v. Lutheran Social Servs., 156 Mont. 381 (1971), which rejected the notion that funds given to an individual who uses them to pay for services at a private institution is an appropriation.
Mr. Schowengerdt commented that no funds would be appropriated to private schools under SB 410. Individuals who donate money for tuition assistance to students are given a tax credit, not direct financial aid. That the donation may end up as tuition paid at a private religious school is a result of the individual's choice, not a government appropriation.
Senator Jones also provided the District Court decision in MEA-MFT v. McCulloch as well as the Montana Supreme Court decision in that same matter, MEA-MFT v. McCulloch, 2012 MT 211, 366 Mont. 266, 291 P.3d 1075, in support of his argument that the tax credit is not an appropriation.
RESPONSE 36: The department thanks Mr. Schowengerdt and Senator Jones for their comments on the case law. These are district court cases that the courts will have to consider in any interpretation of the language of SB 410. The cases did not determine whether the structure here of providing a tax credit for donations to an SSO is an indirect appropriation or payment to a sectarian organization. The department has provided additional response to these concerns in its responses to Comments 6, 9, 13, and 18.
COMMENT 37: The department received similar written comments from several citizens expressing their opposition to proposed New Rule I, stating that banning religious-based schools from participating in the tax credit is unconstitutional discrimination. These individuals stated that the U.S. Supreme Court has ruled that tax credits are not an appropriation and therefore religious schools should not be excluded via the proposed rule. These individuals further stated that SB 410, as written, presents a great opportunity for all students to have access to the schooling that is right for them individually, and ask that the rule be amended to allow for donations to scholarships for all students, not just a chosen few.
These comments were submitted by the following individuals: Mrs. Alton, Mrs. Barndt. Mr. Bos, Ms. Brannon, Mr. Brannon, Mrs. Brigham, Mrs. Centifanto, Mr. De Jong, Ms. Evins, Ms. Flikkema, Mr. Hardin, Mr. Holmquist, Mr. Keim, Ms. Keim, Mrs. Klein, Mr. Klein, Mr. Lang, Mrs. Lowe, Mrs. Newton, Mr. Olsen, Mr. O'Neil, Mr. Owen, Mr. Pattengale, Mrs. Pummel, Mrs. Roller, Ms. Thompson, Mrs. Watson, Mrs. Welna, Mrs. Sytsma, Mrs. Rhodes, Mr. Regier, Mrs. Miller, Mr. Kassity, Mr. Freyholtz, Mrs. Foster, Mrs. Erpenbach, Ms. Emmelkamp, Miss Earnest, Mrs. DeWaay, and Mrs. Adams.
RESPONSE 37: The department appreciates hearing from these individuals and has provided a response to their concerns in the responses to Comments 6, 9, 13, and 18.
COMMENT 38: The following written comments in opposition to the proposed new rules were also received:
LindieAnn stated that tax credits for Christian schools should be allowed.
Ms. Venturelli expressed her support for SB 410, Section 7, wherein the Legislature stated that the tax credits must be administered in compliance with the Montana Constitution and commenting that she believes SB 410 is in full alignment with the Constitution.
Ms. Arnosen commented that excluding religious schools from the tax credit is discrimination and that every child deserves every opportunity.
RESPONSE 38: The department thanks these individuals for their comments. The department followed the directive of the Legislature and the provisions of the Montana Constitution by drafting New Rule I.
COMMENT 39: With regard to proposed New Rule II, Mr. Story testified that it is going to be difficult for scholarship organizations to comply with the requirements as set out because the organizations may not know who will be applying for the scholarships until the organization has been established.
RESPONSE 39: While a student scholarship organization may not know every QEP that it will provide scholarships to, it should know many of them and will have the opportunity to update the department when more information becomes available to them.
COMMENT 40: Mr. Story further commented that the limitation to students in Montana schools in proposed New Rule II was not included in SB 410 and that the department is including provisions in this rule not contemplated in SB 410.
Mr. Mead also objected to New Rule II(2), stating that it includes additional restrictions not set out by the Legislature.
Senator Hansen stated that she is in agreement with Mr. Story's comments regarding the technical problems he identified with proposed New Rule II.
RESPONSE 40: The department appreciates these comments, but the statutes are clear that all students must be Montana students and all QEPs must comply with Montana education laws.
COMMENT 41: Mr. Story and Mr. Mead both testified that proposed New Rule II(1)(d) is a "catch-all" that is intended to cover anything else not in the proposed new rules. Mr. Story commented that this should be stricken and addressed more specifically through the rulemaking process at a later time if the department finds it necessary.
Mr. Mead commented that (1)(d) does not set a boundary on what information the department is seeking from private organizations. He proposed that (1)(d) be deleted, because it is over-broad and threatens the privacy of charitable nonprofits. The department must ensure that information gathered from private charitable organizations serves a valid public interest.
RESPONSE 41: The department agrees with Mr. Story and Mr. Mead and has deleted (d) from New Rule II(1).
COMMENT 42: Mr. Mead further commented that proposed New Rule II(2) expands the definition of "student scholarship organizations" against the intent of the Legislature. Mr. Mead also stated that proposed New Rule II(2) restricts how funds may be spent by a scholarship organization, even when those funds are not derived from the subject tax credit program. These restrictions seem to apply to all funds, not just those derived by SB 410 credits. The proposed new rule should be amended to clarify that it only applies to the tax credit program authorized by SB 410. As proposed, it could be interpreted to apply to all scholarship organizations.
Mr. Schowengerdt agreed with these comments, stating that Montana currently grants tax credits that benefit religious entities, such as the College Contribution Credit and the Qualified Endowment Credit, both administered by the department. However, the department has not prohibited tax credits for donations that may incidentally benefit religious entities in these examples, and it should follow the same policy in administering SB 410.
RESPONSE 42: The department disagrees that proposed New Rule II limits the spending an SSO may engage in outside of the SB 410 tax credit program. Other concerns in this comment have been addressed in the department's response to Comment 9.
COMMENT 43: Mr. Story commented that it might be useful if proposed New Rule III could clarify how the credit limitations apply to pass-through entities and how those contributions will be apportioned among stockholders.
Senator Hansen stated that she is in agreement with Mr. Story's comments regarding the technical problems he identified with proposed New Rule III.
RESPONSE 43: As proposed, New Rule III(4) clearly indicates that pass-through entities receive a credit in proportion to ownership percentages.
/s/ Laurie Logan /s/ Mike Kadas
Laurie Logan Mike Kadas
Rule Reviewer Director of Revenue
Certified to the Secretary of State December 14, 2015