A state that has yet to commit to participating in the federal school choice tax credit starting next year has passed a new law restricting scholarships awarded under the program primarily to public school and low-income students.
Vermont is the first state to pass such rules for the new scholarship tax credit program, an approach some Democrats have said they may favor to direct more of the law’s benefits to public rather than private schools and to students from lower-income families.
But the new rules set Vermont on a collision course with the Trump administration as it develops regulations governing the first federal program of its kind, which will bankroll K-12 scholarships to cover private school tuition, home-school expenses, and some services for public school students.
That’s because the Trump administration says it likely won’t let states attach their own conditions on how the nonprofit groups awarding K-12 scholarships operate. That means Vermont’s law could be effectively null and void after the administration finalizes its regulations for the program, which has long been a priority for school choice advocates and was part of last summer’s One Big Beautiful Bill Act.
That’s a possibility Vermont lawmakers recognized all along, said Democratic state Sen. Seth Bongartz, who initially proposed restricting the program to lower-income students.
“What we wanted to do was be positioned to take advantage of it if it was actually going to benefit Vermont kids,” he said. “If it doesn’t, we’re not interested.”
The Vermont law represents the latest wrinkle in a debate happening among Democrats over participating in the Trump-backed federal school choice program. Most Democratic governors haven’t yet decided whether to opt in their states, and they’re facing mounting pressure from program advocates to do so soon and from opponents, including teachers’ unions, to not participate.
Vermont is one of two states that have taken action in the past week that could close off participation in the program even if their governors want to opt in.
In Rhode Island, Democratic Gov. Dan McKee last week signed legislation removing his sole authority to opt in. Instead, the Democratically controlled legislature will first have to agree.
In a signing statement, McKee wrote that he’d also like to direct the law’s benefits exclusively to public school students, if the Trump administration allows it, “without supporting private school tuition or voucher-equivalent programs.”
Jorge Elorza, the CEO of Democrats for Education Reform, an advocacy group that has been pushing Democratic governors to participate, said he understands Democratic officials’ desire to align the new program with their policy priorities.
But there’s a flip side, said Elorza, a former mayor of Providence, R.I. If Democratic states set their own requirements for SGOs operating in their states, Republican states can do the same.
“It gets very dangerous when we allow more politics to enter into this debate,” he said.
Most Democratic-leaning states haven’t opted in
Under the new federal program, which takes effect next year, taxpayers can claim dollar-for-dollar federal tax credits of up to $1,700 in exchange for donations to organizations that award scholarships to cover K-12 expenses including private school tuition, home-school costs in many states, and certain services for students attending public schools—including tutoring, before- and after-school programs, technology, and uniforms.
But scholarship-granting organizations, or SGOs, can only award scholarships in states where the governor opts in. And as Democrats have considered whether to join, some have expressed a desire to direct more of the program’s benefits to public, rather than private, schools; serve low-income students; and institute nondiscrimination and accountability requirements on the schools that accept scholarship money.
Vermont is among the 16 states that have yet to commit one way or another, according to Education Week’s tracking of state decisions. Thirty-one states are on track to participate, and three governors so far have declined. The mayor of the District of Columbia also has yet to commit.
Vermont Gov. Phil Scott—the nation’s only Republican governor who hasn’t yet opted in—last week signed a bill from his state’s Democratic legislature that limits the federal program’s awards to public school students and a subset of students who attend private schools in the state that receive public tuition funding under an arrangement unique to northern New England.
The rules also say SGOs should have a core mission of helping underprivileged students, and that they should focus on funding scholarships that pay for after-school and summer programs and tutoring—notably not private school tuition.
In addition, the SGOs and those providing scholarship-funded services must follow anti-discrimination measures that bar them from turning away students based on race, gender identity, sexual orientation, or disability status.
A spokesperson for Scott didn’t respond to requests for comment. The SGO requirements were one section in a multi-part package of tax law changes.
“We would prefer to not opt in at all,” said Darren Allen, a spokesperson for Vermont-NEA, the state’s primary teachers’ union, “but if we do, this new law provides some really strong safeguards that we strongly support.”
If Vermont’s law ends up conflicting with federal regulations, the state attorney general must inform the governor and lawmakers, and lawmakers must address the discrepancy before the governor can opt in.
Bongartz said he’d like to see Vermont opt in, but only with its new restrictions intact.
Trump admin. has said restrictions won’t be allowed
The restrictions, however, are unlikely to stand.
The Treasury Department earlier this month previewed aspects of the program regulations it intends to propose by the end of September. The agency confirmed public school students can benefit from the scholarships,but it also said the regulations it issues won’t let states set rules for SGOs beyond those outlined in the federal law.
That means a governor’s only role is to decide whether to opt their state in and supply a list of SGOs that meet the federal requirements: They have to be nonprofit, award scholarships to at least 10 students who don’t all attend the same school, spend at least 90% of their revenue on scholarships, and verify students’ income eligibility.
There’s no limit on the size of scholarships, and the awards can go to most students. The family income limit is 300% of the local median income. That’s $510,000 in Westchester County, N.Y., on the high end and about $114,000 in Wolfe County, Ky., on the low end, according to EdChoice, a school choice advocacy organization.
Elorza’s group is encouraging Democratic states to opt in now so SGOs can set up shop and lay the groundwork for fundraising. Politicians, he said, can use a soft-power approach to direct donations to SGOs that embrace their policy priorities—such as helping public school students.
“Helping the public understand which SGOs align with policymakers’ values is going to be a very powerful influence, especially in the early years as this program gets going,” Elorza said.
