Snyder seeks AG opinion on 529 plans for private K-12

Melissa Nann Burke
Detroit News Washington Bureau

Gov. Rick Snyder is seeking an opinion from the Attorney General Bill Schuette on whether the recent federal expansion of tax savings to help pay for K-12 private school expenses would violate the state constitution if put to use in Michigan.

Michigan Gov. Rick Snyder, right, and Attorney General Bill Schuette.

The congressional overhaul of the tax code allows parents to use tax-deductible savings plans to help cover tuition not only at colleges and universities, but now also at public, private and religious elementary and high schools.

The savings plans are often called 529 plans, after Section 529 of the federal Internal Revenue Code that authorized them.

Michigan’s Constitution has banned the use of public dollars that directly or indirectly aid private or religious schools since 1970, following voter approval of a ballot measure.

Joined by state Treasurer Nick Khouri, Snyder wrote a letter to Schuette on Friday requesting a formal opinion on whether expanding Michigan’s 529 program to allow for private K-12 expenses would violate the state constitutional prohibition on providing direct or indirect public aid to “nonpublic” schools.

“Prompt review of this matter would be greatly appreciated as it will provide needed direction to me, the State Treasurer and the people of Michigan,” Snyder and Khouri wrote in the letter.

“It also may have the beneficial effect of forestalling costly litigation.”

The Michigan Education Savings Program offers a state income tax deduction on contributions and potential tax-free growth on any earnings if account proceeds are used to pay for “eligible expenses,” including tuition, fees, room, board, books, equipment and supplies. Tax deductions are limited to $5,000 maximum for single tax filers and $10,000 for joint filers.

Schuette has been an ally of Education Secretary Betsy DeVos, who last year proposed a $1.4 billion infusion for school choice programs that included $250 million in scholarships for low-income children to attend private schools.

The proposal was rejected by Congress, but the assumption last year was the scholarship plan could not be immediately used in Michigan because the state Constitution’s private school aid ban.

If Michigan does adopt changes for its 529 plans, it could mean less tax revenue coming into the state’s coffers.

The state’s existing 529 program – covering eligible post-secondary education expenses – was expected to cost roughly $14.2 million in tax revenues in fiscal year 2017-18, according to the state Treasury Department.

A Treasury spokesman said Friday the department has not analyzed what it would cost if Michigan extended the 529 program to K-12 expenses.

A Senate-passed bill sponsored by state Sen. Patrick Colbeck, R-Canton, would expand the 529 program in Michigan to cover extracurricular expenses or fees in public K-12 schools.

The Senate Fiscal Agency estimated that if accounts were created for a quarter of Michigan public school students, and an average $1,000 a student were deposited each year, it would cost the state nearly $16 million a year in tax revenue.

Analysts said greater participation or higher average contribution amounts to the savings plans would increase the loss of state revenue under the legislation.

Twitter: @nannburke