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In Louisiana, there’s a way for the wealthy to avoid paying state income taxes.

The state’s Tuition Donation Credit program allows contributors to use the money they’d otherwise have to spend in state income taxes to donate to private schools instead.

Last year, when government regulators ordered the closure of First NBC Bank of New Orleans, a stunning, $1 billion collapse of one of the city’s premier financial institutions, they also effectively bankrupted the state’s Tuition Donation Rebate program, a little-known program designed to pay private schools who offered tuition scholarships to students.

It was the other half of Louisiana’s controversial school voucher initiative, originally known as the Student Scholarships for Educational Excellence Program and now rebranded as simply the Louisiana Scholarship Program, part of former Gov. Bobby Jindal’s massive effort at school privatization.

First NBC was the Tuition Donation Rebate program’s largest contributor, spending millions on rebates and pledging millions more. Because of its closure, hundreds of students would likely lose their scholarships.

Today, the rebate program no longer exists; instead of rebates, Louisiana now offers tax credits. And while that change represented an improvement, it’s still terrible public policy, education experts and good government groups argue. Now, a wealthy taxpayer can effectively avoid spending any money on state income tax if they decide to contribute enough to the renamed Tuition Credit Donation program.

In fact, according to recent reports by both The New York Times and the AASA, the country’s largest association of school superintendents, it’s possible to actually make money off of the program. “In Some States, Donating to Private Schools Can Earn You A Profit,” the Times asserted in its headline.

Although fifteen other states have similar programs, Louisiana’s is still the most generous in the nation.

“Louisiana is the lone exception (in the nation) where credits can exceed tax liability,” according to the AASA. There’s very little evidence the state is receiving even a modest return on the investment.

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The state first began handing out rebates in 2014, and at the time, there was only one Student Tuition Organization (or STO) that qualified to administer the program, a private, Georgia-based company named Arete Scholars. Their agent in Louisiana was Gene Mills, the head of the Louisiana Family Forum, a religious right organization known for its intense opposition to gay rights and abortion and its support for creationism in the classroom, among other things.

Anyone who contributed to the program would eventually receive a 95% rebate for their donation (5% went to the STO for administrative costs), courtesy of the state of Louisiana. “Arete’s 2014 Annual Report indicates that the organization disbursed 14 scholarships (in Louisiana), worth a total of $60,975.02, and all funded by the Atlanta Falcons,” James Finney reported in The Louisiana Voice (emphasis added).

The program struggled to attract applicants, but the Jindal administration had been determined to expand “school choice” as a top priority. “Superintendent John White’s Department of Education, with the approval of the Board of Elementary and Secondary Education (BESE), thought it was critical that there be multiple organizations available to help people support private education rather than pay taxes,” Finney wrote. “So they gave grants of up to $499,750 to ACE Scholarships Louisiana (charter 41590796K) and up to $500,000 for New Schools for Baton Rouge Excellence Scholarship Fund (charter 41726088K) so that these limited-liability corporations could each set up their business of accepting donations, funneling them to private schools, and providing the documentation required for the donors to get tax rebates from the Louisiana Department of Revenue.”

Today, Arete, ACE, and New Schools are the only three STOs operating in Louisiana.

To those familiar with the state’s conservative politics, the program’s most prominent boosters are all familiar names.

Along with Gene Mills, Arete also lists, as their official “Louisiana advisors,” U.S. Rep. Mike Johnson, a far-right Republican from Bossier City, and Timmy Teepell, former Gov. Bobby Jindal’s chief of staff, campaign manager, and most trusted advisor.

Lane Grigsby, whose political action committee spent more than $1.1 million to influence elections for the state’s board of education in 2015 and the chairman emeritus of the Louisiana Association of Business and Industry (LABI), serves on the board for New Schools for Baton Rouge. Conservative activist and businessman Eddie Rispone was one of ACE’s earliest contributors.

To many, Louisiana’s program is nothing more than a transparent attempt to publicly fund religion while privatizing the school system. The participating schools are almost exclusively parochial, and many of the program’s fiercest supporters are well-known activists from the religious right.

While the rebate program itself didn’t earn much press attention, the overall “school choice” initiative in Louisiana is known nationally as a spectacular failure. “In Louisiana, students who won a lottery for tuition scholarships to private schools wound up with worse academic performance than their peers who were lucky enough to lose the lottery,” the Brookings Institute revealed in a report titled “When winners are losers: Private school vouchers in Louisiana.”

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Gene Mills of the Louisiana Family Forum was actually opposed to the legislation that shifted the state’s rebate program to a tax credit. The state had been cutting rebate checks to anyone who donated, even the Atlanta Falcons.

To qualify for a tax credit, however, a donor has to be required to file their state income taxes in Louisiana. That ended the practice of reimbursing out-of-state corporate donors.

Mills, of course, was the agent and advisor of an out-of-state company whose board members benefitted from Louisiana’s rebates. He had hoped the state would be even more generous to corporate donors and religious non-profits, like the Louisiana Family Forum.

When the state House Ways and Means Committee considered the bill to change the program in May of 2017,  Mills testified publicly. “I just don’t think you have to throw the churches, non-profits, and corporate donors under the bus,” he said. “You’re asking me to toss (out) the Atlanta Falcons, the Chik-Fil-A Foundation, and high-dollar individual donors.”

The new tax credit program may not be as lucrative, but it’s still the most generous of its kind in the nation and the only tax credit in Louisiana that allows contributors to count their entire donation against their state income tax liability. (Donations collected by STOs for administrative costs don’t qualify for the credit).

In other words, if you’re an individual who earns a taxable income of $250,000, you’d owe the state of Louisiana $13,750 in taxes. If, that year, you decided to contribute $13,750 to the Tuition Donation Credit program, you just effectively wiped out your entire tax burden, in addition to receiving a $13,750 deduction on your federal tax returns.

If you don’t believe it, Arete Scholars has a nifty calculator to test it out (Note: Arete captures a portion of donations for administrative and processing costs, so, if you’re plugging in the hypothetical numbers above, you’ll need to adjust for those fees).

It’s hard not to see how the program could be abused.

But there is another, larger point of concern: Those who take advantage of this program (and because it’s in its very first year, we don’t yet know how many will) aren’t paying for roads or health care or higher education or any of the other things everyone else pays for. It allows a select group of people to decide they’d rather donate to private and religious schools instead. (Supporters of the program frame this exclusively as an economic benefit for students, but the truth, of course, is that private schools are the ultimate beneficiary).

The Tuition Donation Credit program isn’t just bad public policy; it’s also a prime example of how our Republican-led legislature has gamed the system to benefit their two main constituencies, the religious right and the wealthy, at the expense of everyone else.

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