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Eric Kennedy

Supreme Court decision in Espinoza has no direct impact on Kentucky

Kentucky School Advocate
September 2020

By Eric Kennedy
KSBA Director of Advocacy

Over the last two years, we have been following a lawsuit out of Montana involving the legality of state tax credits for donations made in support of private school scholarships, under the terms of the Montana and United States constitutions.

The case, Espinoza et al. v. Montana Department of Revenue et al., involved a challenge to the income tax credit that Montana’s legislature had created but that the state department of revenue did not implement because it determined that the credit violated the state’s constitutional prohibition on direct or indirect payments of public funds to any school controlled in whole or in part by a church, sect or denomination.

Bills proposing similar scholarship tax credits have been filed for many years in the  Kentucky General Assembly, however none have passed. KSBA is opposed to such tax credits, and to any new tax credits, deductions or exemptions that would reduce the amount of state tax revenue available for investment in our students.

On June 30, the U.S. Supreme Court issued its opinion in the Espinoza case. In a 5-4 opinion written by Chief Justice John Roberts, the court held that the prohibition on allowing families to use state tax-credit scholarships at religious schools was an unconstitutional violation of religious freedom.

The Court therefore upheld the tax credit and overturned the state supreme court opinion which had ruled against it.

In the opinion, Roberts first analyzed Montana’s “no-aid provision” which was the basis for the state invalidating the tax credit.  The provision prohibits “any direct or indirect appropriation or payment from any public fund or monies . . . to aid any church, school, academy” or any other institution “controlled in whole or in part by any church, sect, or denomination.”

The state supreme court had ruled that the scholarship tax credit effectively provided indirect aid to church schools and was therefore invalid. Called upon to decide if that determination was barred by the U. S. Constitution’s free exercise clause , Roberts wrote that the the clause protects religious observers against unequal treatment and against laws that impose special disabilities “on the basis of religious status.”

In short, because the court held that this application of the Montana no-aid provision “bars religious schools from public funds solely because of the religious character of the schools” and does not bar private schools from support if they were not religious, it violated the free exercise clause. Most notably, Roberts wrote that “[a] state need not subsidize private education” but “once a state decides to do so, it cannot disqualify some private schools solely because they are religious.”

So, what impact does this decision have on Kentucky and scholarship tax credits proposed for our state? It appears that there is no direct impact given the unique provisions of Kentucky’s constitution. While Section 189 of our constitution has a similar no-aid clause which prohibits any public funding to aid religious schools, it is preceded by Sections 184 and 186, which provide that “any sum which may be produced by taxation or otherwise for purposes of common school education, shall be appropriated to the common schools, and to no other purpose” and that “[a]ll funds accruing to the school fund shall be used for maintenance of the public schools . . . and for no other purpose . . .”

In other words, unlike Montana, public funding in Kentucky may not be used to aid any private school, whether it is religious or not. No private schools receive any SEEK or other state or local funding, and in fact as we know from a notable old decision, a school board in the Commonwealth may not even spend public funds for a gravel school bus turnaround at the end of a county road because that is not maintaining the common schools.

So because of the Espinoza decision, a state does not have to subsidize private education but, if it does, it cannot disqualify religious schools. Kentuckians have decided and enshrined in our constitution that we will not subsidize private education with public funds. Therefore, it does not appear that this opinion will have a direct impact here, but that is not to say it will not have an impact on the debate around tax credit proposals in our legislature.

If a scholarship tax credit is ever adopted in Kentucky, and if it is ever challenged under these provisions of our constitution, it remains to be seen how a future court would interpret and apply Sections 184 and 186 to such a law.

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