Who will profit the most if SB 727 becomes law?
April 23, 2024
The Missouri Empowerment Scholarship Accounts Program (MESAP) was created in 2021 with the enactment of Sections 135.712 to 135.719 and Sections 166.700 to 166.720.
OVERVIEW
MESAP allows individuals and businesses to donate cash, stocks, bonds and marketable securities to 501(c)(3) Educational Assistance Organizations (EAOs). One hundred percent of the donation is credited against the donor’s Missouri tax. Donations exceeding 50% of the donor’s tax liability are carried forward and credited against taxes owed. Missouri tax revenues, therefore, fund these donations. Donations cost the donor nothing.
Coincidentally, in 2021 and 2022, Congress allowed charitable tax deductions for 100% of the fair market value of marketable securities without incurring any capital gains tax on the appreciated value of the stock. Ordinarily, the capital gain must be reported which reduces the amount of the charitable deduction.
For example: assume publicly traded XYZ Technology Corp. owes income tax of $1.2 million to Missouri. They arrange through an EAO to donate XYZ stock, having a market value of $500,000, to the MESAP scholarship fund. XYZ’s cost in the stock is $125,000.
XYZ offsets federal taxable income with a $500,000 charitable deduction. XYZ subtracts $500,000 from the $1.2 million it owes for Missouri taxes. The donation cost XYZ nothing, plus they pocketed money in saved taxes.
Junk bond king and pardoned felon, Michael Milken, is heavily involved in education. He founded KinderCare Learning Centers, the largest for-profit childcare provider in the US; Knowledge Universe, Inc; Knowledge Learning Group; and publicly traded K12 Inc, the largest, by enrollment, educational management organization, paid with tax money, to provide online schooling. There are articles indicating that some educational management organizations actually operate public schools.
Rex Sinquefield and his Show-Me Institute openly seek to privatize public schools with Sinquefield in the driver’s seat. He made large campaign donations to former house speaker, Tim Jones. Jones’ activities with ALEC to privatize education are well publicized.
Jones formed and led the Freedom Caucus. Caucus member, Sen Andrew Koenig, SB 727’s sponsor and candidate for state Treasurer received campaign money from Sinquefield.
It is no secret that billionaires wish to privatize and take control of public education.
A dominant force in ALEC is Charles Koch of Koch Industries. Koch’s political advocacy group, Americans for Prosperity, actively supported SB 727 and following the recent house vote, is celebrating and holding public meetings to seal the deal.
There are other billionaires in Missouri and elsewhere who plan to profit from the large pool of tax money collected for education as well as control what our children learn. Unfortunately, their focus is making good employees who follow rules rather than raising children who think for themselves.
PUBLIC SCHOOL FUNDING
When MESAP was first enacted, the legislature retained some control by only allowing MESAP donations and tax credits if school transportation was state funded to at least 40%. SB 727 deleted that provision.
Also, public school districts were not to be penalized for the loss of students because of MESAP. Section 166.720. 4. allows public schools to include those students in their enrollment for purposes of state and federal funding. Schools will lose funds when that provision expires on 8/28/26.
SCHOLARSHIP ACCOUNTS
The Educational Assistance Organizations (EAO) “provide” the Scholarship Accounts. Donations are not paid to the Treasurer. They probably are not paid to the EAO either because MESAP allows the EAOs to contract with private financial management firms to manage the Scholarship Accounts.
The EAO’s may contract with private financial management firms to manage the Scholarship Accounts. EAO’s are required to spend all “revenues from” interest or investments and at least 90% of “revenues from” qualifying contributions on Scholarship Accounts.
This language indicates that donations are invested with financial management firms and the earnings on interest, investments and donations are spent on scholarship accounts to students. Had the drafters intended 90% of the donations to be spent on scholarships they would have simply written that. “Revenues from,” means earnings.
It is tempting to think this was sloppy draftsmanship but this statute was carefully and cleverly crafted to conceal the creation of a private fund that is invested and growing, tax free, like an endowment or foundation, with annual additions of tax money.
MESAP allowed $50 million/year of tax money to be deposited to the scholarship account. SB 727 increases that to $75 million/year.
The state treasurer receives 4% of cash donations and 2% of total donations (cash, stocks, bonds and marketable securities) solely for the treasurer’s marketing and administration costs. This money is designated as the Missouri Empowerment Scholarship Accounts Fund. The treasurer is custodian of this money.
Property taxes will increase as our local public schools lose funding because of MESAP and privatization and to pay for the bribes needed to pass SB 727.
OTHER MATTERS
SB 727 adds an EAO to the Missouri Empowerment Scholarship Accounts Board. The private EAOs one or more of which are more intimately connected with the money and the back room dealings of MESAP, likely provide access and control of the Board by unseen billionaires.
Providing public money to religious schools violates the First Amendment to the Constitution. This issue became more apparent when SB 727 was amended to put DESE, a state agency, on the Missouri Empowerment Scholarship Accounts Board with authority to make rules governing the Scholarship Account. Is it not obvious that religious organizations, given public money, are instruments of the state. What a shame for those parents who pay for private education to escape government schools.
This complex setup of EAO’s, donations and tax credits, attempts to circumvent the First Amendment Freedom of Religion. There will be court challenges. Courts commonly look past the tricks and don’t uphold “form over substance.” Unfortunately, the taxpayer will bear this added litigation expense.
Private and religious schools are not constrained by state and federal constitutions which apply only to government. Private schools do not have to enroll students with special needs and are generally not equipped to serve these students. The state adequacy target (SAT) of $6,700, as adjusted for various groups by SB 727, may not cover all the costs of private tuition. Children with special needs and those in low income families, are most likely to be stranded in public schools that deteriorate as privatization reduces their funding.
PROPERTY TAXES
According to a May, 2021 report by the state auditor, Missouri ranks 49th in the nation in the percentage of state funding to schools. Roughly 30% comes from the state, 60% from local funding and 10% from the federal government. SB 727 overcame resistance by offering incentives to various special interests. It is so easy to play Santa Claus with our tax dollars.
Property taxes will increase as our local public schools lose funding because of MESAP and privatization and to pay for the bribes needed to pass SB 727.
How did we get to this place where the state, bearing only 30% of the cost, imposes rules and financial burdens on those bearing 60% of the cost?
Increasing the tax burden of parents and others to benefit the billionaires weakens families and communities.
REPORTING
In August, 2024, three years after MESAP was enacted, the state treasurer is to report to the public learning gains, test results and graduation rates. That’s all the information we get for our investment of $50 million per year. The statute does not require the treasurer to report the financial aspects of the program – nothing.
After five years, the treasurer is to issue a report on the state of the program. This report is to include 1. the finances of the EAO’s and 2. the educational outcomes of qualified students. I doubt we’ll be any better informed after five years since the EAO’s don’t actually hold the money. They’ll show $x received (i.e., from an investment firm such as Black Rock) and $x disbursed. The true workings of the scholarship fund: the total invested, where it’s invested, what it’s invested in, what it earns, the fees paid, who the “donors” are, won’t be disclosed.
What Can Missourians Do?
SB 727 will soon be delivered to the Governor’s desk where it could be signed into law any day. Please contact Missouri Governor Mike Parson and urge him to veto SB 727. We have one last chance to save Missouri from this scheme disguised as education reform!
Governor Mike Parson
573/751-3222
governor.mo.gov
IHC Legislative Team
IHCM.info
