South Carolina tax probe targets private school choice group

The state’s tax agency is investigating the nonprofit that dominates the state’s $8 million-a-year private school choice program.

That nonprofit, Palmetto Kids Scholarship Program, is refusing to reveal the names of families that it has given tuition grants to and has asked a judge to weigh in.

The S.C. Department of Revenue requested those names from Palmetto Kids after hearing complaints, which The State reported on exclusively in May, about the nonprofit, which raises money to help children with disabilities pay for private school.

The tax agency is investigating whether Palmetto Kids was offering parents private school tuition grants in exchange for donations that qualify for state tax credits. Donors can use the credits to reduce the taxes that they owe by up to 60 percent.

That quid-pro-quo arrangement – make a donation, get a scholarship and a tax benefit – would make parents ineligible for the tax credits. State law says donors may claim tax credits only if they do not designate a child or school as the beneficiary of their contribution.

The tussle comes as lawmakers are debating changes to the two-year-old program, now limited to special needs children only. School choice advocates and some lawmakers want to expand the program to benefit children who live in poverty and others.

The Revenue Department said its review would determine whether some tax credits have been awarded unfairly – money that could be recovered and awarded to other donors.

Palmetto Kids, a Mount Pleasant-based nonprofit, denies promising tuition grants in exchange for donations. It also has asked the S.C. Administrative Law Court to intervene to protect the privacy of families who have received tuition grants. A hearing was scheduled for Tuesday but has been delayed.

“We're talking about special-needs children and their disabilities,” said Olga Lisinska, the nonprofit’s operations director. “We are not authorized to disclose that information to anyone, including the Department of Revenue.”

In a sworn statement to the court, Lisinska said the nonprofit does encourage parents of special needs children to donate to the program. But, she continued, the nonprofit also “informs every donor that donating ... will have no impact on the award of a specific scholarship grant.”

Lisinska said she has reviewed Palmetto Kids’ records and found that less than 3 percent of donors had children who also were awarded a private school tuition grant. Those grants accounted for only $333,535 of the $12 million that the nonprofit has raised, she said.

School-choice tax credit popular

The standoff between Palmetto Kids and the state’s tax agency comes in the second year of the state’s fledgling private school choice program for children with disabilities.

The state began offering a tax credit in 2014 for donations made to nonprofits that offer grants to special needs children to help pay for private school tuition. Lawmakers agreed to give up to $8 million in tax credits a year, granted on a first-come, first-serve basis.

Taxpayers claimed $5.9 million of the $8 million in credits OK’d during the program’s first year, which ended June 30. As of mid-November, taxpayers had claimed the full $8 million in tax credits that lawmakers OK’d for this fiscal year, which started July 1.

This week, state senators will review the school choice law, which some want to expand. For example, state Sen. Larry Grooms, R-Berkeley, wants to expand the tax credits to $25 million a year, and offer tax deductions to parents of children who attend private school or home school.

Avoid Georgia issues

But, while some are pushing to expand the program, education watchdogs are pushing for more oversight of the nonprofits that distribute tuition grants and the private schools that want to participate.

State Sen. Wes Hayes, R-York, chairman of a Senate K-12 budget panel, said he wants to avoid what happened in Georgia where a Southern Education Foundation report found that tax credits often were going to parents of private school children, instead of helping low income children afford private school as intended.

Lisinska said Palmetto Kids is being targeted for political reasons tied to its success.

“From the very beginning, we have been the most successful,” she said. “But our main goal has been to raise as much money and issue as many scholarships as possible to help the most children as fast as possible.”

Of the five nonprofits OK’d by the state to accept donations and distribute tuition grants, Palmetto Kids is by far the most active.

The nonprofit has reported raising nearly $12 million from 575 donors since the program began, meaning it donors qualified to claim roughly 86 percent of the available tax credits.

As of January, the nonprofit had awarded more than $11 million in private school tuition grants to about 1,000 students.

Lisinska also said the state is auditing her personal finances and those of her husband, Jeff Davis.

Davis, who started a similar nonprofit in Georgia, was the driving force behind Palmetto Kids before handing the operation to Lisinska.

A past bankruptcy prevented David from serving on the board of directors of Palmetto Kids so he volunteered with the operation. However, after The State wrote about Davis’ legal and financial problems, the General Assembly last year changed the school choice law to prohibit anyone with a bankruptcy in the last seven years from sitting on a board or volunteering.

This story was originally published March 23, 2015 at 8:55 PM with the headline "South Carolina tax probe targets private school choice group."