Democratic governors divided over Federal Scholarship Tax Credit

Public school groups launch SGOs to channel donations to public school students

The Federal Scholarship Tax Credit is set to begin in January, with a Jan. 1 deadline for governors to opt their states in for 2027 participation. Under the program, qualifying taxpayers can donate up to $1,700 to a scholarship-granting organization — an SGO — and receive the full amount back as a federal income tax credit. The SGO then converts donations into scholarships that families can use to cover private school tuition, tutoring, summer school, and other education expenses.

Marguerite Roza, of Georgetown University’s Edunomics Lab, said the credit amounts to directing money the donor would otherwise have paid to the IRS. “It’s not your money,” Roza said. “It’s money that you would have sent to the IRS.”

The Institute on Taxation and Economic Policy has estimated that more than 138 million people could qualify for the full credit. The Treasury Department has projected that the program could raise nearly $26 billion in scholarship donations by 2030 — a sum that would exceed the $18 billion in Title I federal aid sent to schools in 2023 to support low-income students.

Thirty-one states have signed on; most are led by Republicans. In Kansas, Kentucky and North Carolina, top Democrats fought the program but were overridden by Republican legislatures, leaving families in those states eligible for scholarships regardless of their governor’s stance. If a governor does not opt in, state taxpayers can still make donations and claim the credit, but the state’s families will not qualify for awards. Governors who have opted in for 2027 can also choose to opt out for 2028 or vice versa.

Among Democratic governors, the divide is sharp. Polis said his decision to opt in was “an obvious decision.” “Of course I want Colorado kids to be the beneficiaries of that,” he said. Hochul has also joined. Walz, asked earlier this year whether Minnesota would participate, was blunt: “That is never going to happen. We are not doing it.” Fifteen other Democratic governors and the mayor of Washington, D.C., have not yet announced a position, according to a tracker maintained by Education Week.

For critics of the program, the public-school framing amounts to a deliberate political wedge. “This is really, really hard because the policy is designed to try to make these [political] wedges,” said Jessica Levin, litigation director at the Education Law Center, a nonprofit that opposes private school vouchers. Levin said Democratic governors may feel they cannot pass on the program because they think, “Oh, there is a benefit for public schools, and I’m going to get flack.” Levin described the program as a kind of Trojan horse: vouchers can lead families to leave for private schools, which she said can then result in declines in public school funding. “The vast majority of the money is going to be used on private school tuition and other private education expenses,” Levin predicted.

Some public school advocates have decided to work within the program rather than around it. The Southern Education Foundation, established in the aftermath of the Civil War to guarantee schooling to the children of formerly enslaved people, has announced a pivot. “The question for me became less about whether I agreed with every aspect of the program, because I don’t, and more about what happens now that the program is moving forward,” SEF President and CEO Raymond C. Pierce said in a press release.

The foundation is launching an alliance of SGOs focused on raising funds for public school students. Fred Jones Jr., SEF’s senior director of public policy and advocacy, acknowledged the foundation’s longstanding opposition to vouchers. “We’ve always been an organization that has promoted public schools, and we oppose private school vouchers,” Jones said. But, he added, “if we have tutoring, if we have afterschool programming, if we get summer learning… I think a number of students in the public school system could be tremendously better off.”

Deborah Gist felt the same way. “I am making sure that public school students benefit,” she said. The former superintendent of Tulsa Public Schools, one of Oklahoma’s largest districts, Gist recently founded Future School Fund, a national SGO focused on serving public school students. “I pulled up the bill language itself and saw right there that public schools were very explicitly included,” Gist said. “So I immediately started wearing my public school educator hat. I immediately started thinking about all of the kinds of things that we could fund.”

Even with those efforts, public schools face an uphill climb. Many states already have state-level tax credits focused on helping families pay for private school, and very few of the SGOs already up and running are public school-oriented. As Levin observed: private schools already have the SGOs, the infrastructure and the advertising budgets.

Public schools also face structural limits on what the donations can fund. They are required to provide education free of charge and cannot begin charging for traditional services simply to access donation dollars. “You can’t charge a fee for math class,” Roza said. Possible fees, she suggested, might cover field trips, assemblies, tutoring, aftercare, homework drop-in hours, and end-of-year parties.

Levin said such reimbursements, even where legally permissible, would not constitute meaningful support for public schools. “It’s very wrong and very dangerous,” she said. “Public schools don’t charge for most of what they provide because that’s the entire point of public education. The best way to support public schools is to fund public schools. It is not to accept a privatization program that throws a few crumbs at public school students.”

Roza agreed the design is unwieldy — “the most convoluted, circuitous way possible anybody could have ever laid out — and with all sorts of caveats in it” — but said it remains a real program that won’t benefit districts unless they actively embrace it. For the tax credit to raise a meaningful amount of money for public school communities, Roza said, districts will not only need to team up with public-school-focused SGOs but also convince local employers to include the option to donate as part of their regular payroll operations; school districts will want to fold the option into their own payroll systems. “The money is not showing up automatically,” she said. “Districts will have to play this game in order to get the money. And where districts shrug their shoulders and say, ‘I’m not doing this, I’m not gonna participate,’ then they’re not going to get any.”

Distribution of any funds that do flow is likely to be uneven, researchers project. Jon Valant, a senior fellow at the Brookings Institution and director of its Brown Center on Education Policy, said giving patterns tend to concentrate locally. “It’s the public schools that are in wealthy communities that have the most money locally that they can raise,” Valant said. “And if the patterns of giving for this program look like patterns of giving for other programs across the country, we expect that most people are going to give to [SGOs] that then give back to the schools in their communities.”

A Brookings team estimates the wealthiest counties would generate roughly three times as much money through the program as the nation’s poorest counties. Valant said that means lower-income and rural communities would have to rely on wealthy donors’ willingness to give beyond their own communities, which he said is unlikely.

Eligibility also extends well up the income ladder. Students qualify if their household earns less than 300% of the area gross median income — a threshold the Treasury Department estimates captures roughly 95% of all students. “There are kids across the country whose families make a half-million dollars a year who are income-eligible,” Valant said.

Given the projected distribution, Valant warned, “there’s a real chance that we end up seeing this program as Title I for rich kids.”

Jones, of SEF, acknowledged the tension. He said he would advise holdout Democratic governors to opt out, but in the Southern states where SEF operates, most have already opted in. Without an organized effort to raise public-school funds, he said, “then it simply won’t happen and most of the money will, indeed, go to private schools.”