Public schools eye federal tax credit

A federal tax credit program created last year now allows public schools to seek donations directed from taxpayers' federal returns. The program, established by President Donald Trump's One Big Beautiful Bill Act, permits taxpayers to contribute up to $1,700 to a scholarship-granting organization for a dollar-for-dollar federal income tax credit.

According to U.S. Treasury guidelines released in June, these organizations can then pass money to school districts to cover specific costs like transportation, tutoring, field trips, clubs, technology, textbooks, or support services. Sara Hazel, president of the Denver Public Schools Foundation, is among the district leaders planning to take advantage of this financial opportunity.

How the program works

The mechanics represent a dramatic departure from traditional federal school funding. The money for the scholarships never flows through U.S. Department of Education coffers, entirely bypassing Congress. States must opt into the program, and 30 states have done so.

Now, individual school district leaders in those states must decide if they want to try to tap into the money. School finance experts suggest the scholarships could help districts access funding comparable to 3 percent of their entire budget.

Political and logistical hurdles

Tapping into this revenue risks political backlash and logistical headaches. Governors and superintendents may face fierce resistance from teachers unions, which in many states have portrayed the new program as a Trojan horse for expanding vouchers because it also allows money to funnel to families for private school.

Some opponents raise concerns about creating a new funding system that could favor school districts with a ready pool of wealthy donors over those in low-income communities. "In low-income areas, you're going to find it's not easy for school districts to raise this money," said Thomas Toch, director of the think tank FutureEd at Georgetown University.

Toch said he worried the inclusion of public school districts in the legislation was little more than a ploy, a shrewd political strategy to further school choice. "It was designed to make the case that this program can support the public sector in order to win support in blue states," Toch said.

A potential funding lifeline

For cash-strapped districts, the program presents a dilemma. Marguerite Roza, a school finance expert and director of the Edunomics Lab at Georgetown University, has advised districts they can't afford to ignore this new source. "Any time there's an available revenue source, generally we don't see districts saying, 'No thank you,'" Roza said.

Justin Dayhoff, chief financial officer for Nevada's Clark County School District, which includes Las Vegas, echoed that view. "The reality is this program exists, and if there are dollars on the table that can go to our children and families, I don't understand the purpose of not trying to do everything we possibly can," Dayhoff said. His district has seen enrollment dwindle by more than 35,000 students, or 11 percent, since before the pandemic.

Some experts expect soliciting donations could be as simple as districts partnering with employers to enroll their workers in the tax credit program. Roza estimated a district could bring in about $200 per student just by enrolling its own employees.

Operational challenges remain

However, significant operational hurdles exist. Under the new law, at least 90 percent of all donations to scholarship-granting organizations must go directly to student scholarships, leaving little to cover marketing, staff, audits, and processing. Sara Hazel noted fees already take 4 percent of each credit card transaction.

Hazel also wonders if her district will have to compete with others for the same corporate donors. "We're the largest school district in Colorado, so we already have an advantage," Hazel said. "But how can we go to a company and say, 'Your employees must choose between all these great school districts?'"

Even as she awaits further clarity from Treasury, Hazel imagines what the money could mean. "My dream is I can give every second grader a tutor and we get everyone to grade-level reading and math," she said.

This story about the One Big Beautiful Bill Act was produced by The Hechinger Report.