ATLANTA – Two popular state tax-credit programs that raise money for rural hospitals and private-school scholarships are having more trouble attracting donors than when they were first launched, a problem supporters blame on federal tax laws.
The 12-year-old private-school scholarships tax credit was consistently hitting its $58 million cap on contributions so early in the year the General Assembly raised the limit to $100 million in 2018. But last year, the program didn’t reach the new cap until Dec. 2.
The rural hospital tax credit didn’t even hit its $60 million cap last year for the first time since lawmakers created the program in 2016.
It came close, reaching $49.4 million by the end of 2019, according to figures supplied by the Georgia Department of Revenue. But the program is off to a slow start this year, with $6.7 million in donations as of Jan. 14.
In the aftermath of tax reform legislation President Donald Trump steered through Congress near the end of 2017, the Internal Revenue Service declared in 2018 that individual taxpayers could no longer receive an income tax deduction for charitable contributions if they received a state tax credit for the same donation.
The change has discouraged would-be contributors from applying for the tax credit, said Jimmy Lewis, CEO of HomeTown Health Care LLC, an advocacy group representing rural hospitals in Georgia.
“The donations dried up immediately because the return on investment for a donation dried up instantly,” he said. “Donors are very sensitive to how they donate their money, the return on investment.”
Lewis said the tax credit program has been a godsend for cash-strapped rural hospitals, allowing them to spruce up emergency rooms and operating rooms and, in some cases, add new health-care service units to their facilities.
“This is the simplest way to get capital into a hospital without having to go into onerous costs and administrative burdens,” he said. “It’s a great program.”
Rural Georgia suffered through a series of hospital closures around a decade ago. Since then, however, only a couple have downsized their operations while remaining open for business.
While supporters of the tax credit program attribute some of that positive trend to the donations, a separate initiative then-Gov. Nathan Deal launched in 2014 to form the Georgia Rural Hospital Stabilization Committee also played a role. The panel of state legislators, local elected officials and hospital executives committed $3 million a year for five years to a series of pilot programs.
“With these small rural hospitals, everybody is trying to figure out how they’re going to make payroll at the end of the week,” said Georgia Rep. Terry England, R-Auburn, one of the committee’s co-chairmen. “They don’t have time to think things through. … A lot of what we’ve done is give them the breathing room to do experimentation.”
The private-school scholarships program also has achieved some impressive results. The largest student-scholarship organization created after passage of the tax credit in 2008, the Georgia GOAL Scholarship Program, had awarded 40,542 scholarships worth $157.2 million to 16,720 students as of Oct. 31, primarily to students in low- and middle-income families.
Besides the federal tax changes, the rural hospital tax credit program also has been hit with a critical state audit that might be expected to affect the level of donations.
The report, released last month by the state Department of Audits and Accounts, concluded the contributions to the tax credit program “did not necessarily go to the most financially needy” hospitals and called for greater accountability and transparency provisions.
Georgia HEART Hospital Program LLC, which helps the 56 rural hospitals eligible for the program market and process taxpayer contributions, strongly objected to the findings.
Lewis said he doesn’t believe the audit will reduce support for the program among donors.
“I think it’s going to be more of an encouragement to clean up the program than slowing down donations,” he said.
Lisa Kelly, president of Georgia HEART, predicted the rural hospital tax credit program will hit its cap this year, despite the slow start. She cited an update to IRS regulations issued in December clarifying that businesses may take a federal income tax deduction for the charitable contributions they make to rural hospitals as well as a state Department of Revenue rule published last summer stating that owners of “pass-through businesses” – including sole proprietorships, partnerships and S corporations – can claim a tax credit through the program.
“Our participating rural hospitals are very excited about the continued financial support that citizens from throughout Georgia are providing to help enhance access to rural treatment,” Kelly said in a news release issued Jan. 14. “The availability of both a federal and state income tax benefit makes it likely that the $60 million cap will be reached in 2020.”