Democrats Face Tough Decision on Federal Scholarship Tax Credit

Democrats and advocates for public schools are under pressure to decide whether to join a Republican-driven initiative that might aid public school families with expenses like tutoring and summer schooling, but which also channels taxpayer money to private institutions. Colorado Governor Jared Polis was the first Democrat to support the Federal Scholarship Tax Credit, heralded by the Trump administration as “America’s first nationwide school choice program.” Polis views his decision as straightforward, envisioning benefits for students in Colorado. “Of course, I want Colorado kids to be the beneficiaries,” he expressed in an interview with NPR, implying that other governors might share his perspective.

However, skepticism prevails among fellow Democrats. Minnesota Governor Tim Walz had firmly rejected the program for his state, stating, “We are not doing it.” The ambiguity exists among 15 Democratic governors and the Washington, D.C. mayor, as reported by Ed Week. To participate in the following year, a decision is required by January 1.

The program is designed to create political wedges, says Jessica Levin, litigation director at the Education Law Center, voicing opposition to private school vouchers. Levin notes that rejecting this program could be challenging for Democrats who see potential public school benefits.

Although praised as advantageous for public schools, Levin and others concerned argue the program acts as a Trojan horse. Increased enrollment in private schools, funded by vouchers, might lead to decreased public school support.

Understanding the Tax Credit

Starting in January, eligible taxpayers may contribute up to $1,700 to a scholarship-granting organization (SGO). These contributions transform into scholarships or vouchers, assisting families with costs such as private school tuition, tutoring, and new technology. Donors receive a tax credit equivalent to their donation, deducting every dollar given from their tax dues, capped at $1,700. Marguerite Roza from Georgetown University describes this dynamic, saying, It’s not your money. It’s money that you would have sent to the IRS.

The Institute on Taxation and Economic Policy acknowledges that over 138 million individuals qualify for the full credit. The U.S. Treasury forecasts that nearly $26 billion could stem from scholarship donations by 2030. For context, Title I, a major federal education funding source, provided over $18 billion to support low-income students in 2023.

While 31 states have embraced the program, Republicans lead most. Democratic Governor Kathy Hochul of New York joined Polis. In Kansas, Kentucky, and North Carolina, Republican legislatures overruled Democratic opposition. Without opting in, a state’s taxpayers can donate and claim tax credits, but they cannot utilize the scholarships to cover educational expenses. However, governors may switch their participation annually.

Strategies for Opponents

Democratic governors and groups advocating for public schools, particularly in Republican states, confront a dilemma. Debating whether to resist on principle or opt in to help families take advantage of the program. The Southern Education Foundation (SEF) decided on a practical route, aiming to spearhead SGOs devoted to public school student aid. Fred Jones Jr. of SEF remarked on the change in tactic, aligning with their ongoing support for public education despite earlier resistance.

Deborah Gist echoed this sentiment. As the founder of Future School Fund, an SGO focused on public school students, she emphasizes leveraging such programs to maximize benefits. Gist reviewed the bill and saw explicit reference to public schools, prompting her to contemplate funding opportunities for students.

Public schools in participating states must hasten to capitalize on the new program. Existing SGOs primarily aid private schools, already equipped with necessary structures and publicity. Levin and other proponents of public schools remain critical, fearing significant funds will cater to private school costs instead.

Monetizing Public School Contributions

Roza highlights another concern for public schools: understanding which services can legally incur fees. Public schools cannot charge fees for core subjects, directing focus to extra services, like field trips or aftercare, for potential reimbursement. Levin criticizes this approach, stressing the need for foundational public school funding rather than relying on potentially divisive programs.

Despite its complexity and possible challenges, public schools are urged by Roza to embrace the tax credit program. By engaging with public-school-centric SGOs and motivating local businesses to support the program, schools can capture potential donations.

Public schools with stronger local economies are predicted to raise more due to their resource access. Lower-income schools may depend on external donor generosity, which seems improbable to Valant. Policy eligibility includes students from families earning less than 300% of area income, indicating up to 95% qualification, based on Treasury Department insights. Valant warns of the potential for this program to enrich wealthier districts.

The decision for remaining Democrat governors is complicated. Jones recommends opting out, yet acknowledges that without targeted opportunities in states committed to the program, donations might disproportionately benefit private institutions.