The Treasury Department has delayed critical guidance for the Federal Scholarship Tax Credit, a new tax credit program designed to reshape school funding across public and private sectors. Governors face a tight deadline to opt in or out of the program, yet Treasury has taken 15 months to finalize one set of regulations and released only an incomplete proposed set with the public comment period still open.
Five Democratic governors have written to Treasury requesting answers on three key issues before they decide whether to participate. Treasury has offered no informational webinars, technical assistance, or direct engagement with states beyond a small invite-only June session.
The governors want clarity on qualified expenses for public school students. Under the law, Treasury has limited authority to restrict what counts as an eligible expense for public schools, since the law treats public and private schools equally. State law imposes the real limit. California has strict rules against charging students for extracurriculars, but most states allow charges for non-mandatory services like mental health supports, tutoring, and assemblies. An exception exists for special education, where federal law requires all services be provided free.
Governors also question Treasury's limits on state oversight of Scholarship Granting Organizations, which distribute the tax credits. The law requires states to determine which organizations qualify, but Treasury's draft regulations prevent states from officially regulating SGOs. States could work around this by requiring schools and organizations that receive SGO funds to report those receipts, or by using state leverage to encourage SGOs to report voluntarily.
On closing opportunity gaps, governors want to require SGOs to target higher-needs students. Treasury appears focused differently, but states retain real authority through their opt-in power and could condition continued participation on SGOs serving higher-poverty public schools.
Governors also asked whether federal funds will cover state oversight costs. Treasury's proposed regulations contain no mention of funding for state compliance work. States choosing to participate would need to fund public information campaigns, coordinate with large employers on payroll deduction mechanisms, and monitor compliance. The author estimates potential financial benefit of $1,000 per public school student once the program runs.
The author notes uncertainty about Treasury's final guidance on allowable expenses and suggests governors considering opting in should establish clear criteria for whether their state will continue participating in subsequent years.