Beginning in January, a new federal program will allow Americans to donate up to $1,700 to a "scholarship granting organization" (SGO) and receive the full amount back as a federal tax credit. The program, established in last year's reconciliation bill, was initially presented as a way to subsidize private school tuition. However, supporters are now also promoting it as an avenue for public schools to secure funding.
Ohio has operated a smaller version of this program for five years, offering a state tax credit of up to $750 per person for SGO donations, which began in 2021. This state experience offers insights into how such programs play out. The majority of the funds raised in Ohio have gone to families already enrolled in private schools. Nonetheless, a few public school districts have attempted to leverage the program, primarily to cover the cost of full-day kindergarten, which Ohio state law does not mandate and allows schools to charge tuition for. For some Ohio families, all-day kindergarten can cost over $3,000 annually.
Communities in Ohio have formed SGOs to help families manage these tuition costs. Nordonia Hills, a suburban school district in Northeast Ohio, notably established the state’s first public school SGO. This year, Nordonia Hills successfully raised approximately $252,200 through its SGO, ensuring all families in the district could access all-day kindergarten.
However, this approach appears to be most effective in wealthier communities like Nordonia, where residents are more likely to have the necessary tax obligations, time, and knowledge to redirect their funds. The structure of the new federal program is similar, with even more specific requirements.
One significant challenge is that the funds do not flow directly to schools for general purposes, such as hiring a reading teacher, repairing a roof, or running an after-school program for all students. Instead, SGOs can only pay for services or programs that a specific student would otherwise be charged for. For a public school to "benefit," it must charge families for a service. Districts that currently provide free kindergarten, free technology, free field trips, or free instrument rentals would receive no funds unless they began imposing fees, which would create new costs for every family.
Income limits for vouchers are set at up to 300% of an area’s median income, but these cutoffs vary widely by community. For example, in Nordonia Hills, the income eligibility threshold will be $276,000 per year, while in the wealthier suburb of Hudson, families earning up to $494,000 will qualify. In contrast, East Cleveland, a struggling inner-ring suburb that does not have an SGO, has a cutoff of $75,000.
Another hurdle is the administrative burden of running these programs. A preview of the forthcoming U.S. Treasury Department rules indicates that SGOs must spend at least 90% of their income on vouchers, meticulously verify each family’s income, and complete annual audits and IRS reporting. Many existing school foundations might not qualify and would likely need to establish entirely new nonprofit organizations. School districts themselves receive no compensation for the additional tasks of invoicing, tracking, and paperwork associated with these programs. Private schools are often better equipped for this, as many already have established financial aid offices, donor lists, and accounting systems.
Ultimately, this program is expected to further reward communities and families that already possess greater resources. Wealthier areas like Hudson and Nordonia Hills are likely to generate more donations through their SGOs than urban or rural districts. This outcome, funding a public good through individual effort, will likely "exacerbate disparities between districts," rather than foster a more equitable system.
The implementation of such programs comes at a cost to public revenue. Every dollar returned to a donor as a tax credit is a dollar less in federal funds, which could otherwise be allocated to critical areas such as special education, low-income schools, or school meal programs. Ohio’s state tax credit alone cost nearly $27 million in 2023. Meanwhile, by one estimate, Ohio’s current two-year budget has left public schools $2.75 billion short of its own school funding formula, while simultaneously allocating $2.4 billion to private school vouchers. The federal voucher program could cost the federal budget as much as $51 billion annually.
Approximately eight out of ten children in Ohio attend traditional public school districts, which should not be forced to become fundraisers, fee collectors, and paperwork processors to receive minimal benefits from a program primarily designed for others. Children should not need a voucher to access a welcoming and well-resourced public school. States that have not yet adopted such programs, or like Ohio, which has, are advised to critically evaluate whether this program constitutes a genuine school funding strategy. The source suggests that the real solution lies in Ohio meeting its constitutional obligation to fully fund public schools, and Congress fulfilling its long-standing commitments, including special education funding pledged 50 years ago.