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Money will start flowing in January for the new federal scholarship tax credit program. Per the law, taxpayers will be able to direct $1,700 of their annual federal taxes to fund scholarships for students. Since public school students are eligible, Edunomics Lab that districts could tap real money 鈥� we estimate $1,000 per pupil or more, when the program is fully phased in.

Given that it鈥檚 money that doesn鈥檛 come from state or local taxes, we anticipate most states and districts will want in.

Our proposal: Districts set a fixed fee for access to a bundle of services. Imagine the district offers an $800 鈥淜12-plus plan鈥� that provides access to stuff like field trips, tutoring, homework help, assemblies, clubs or other services not required in the state鈥檚 definition of required public education. Every student signs up, but none 鈥� save for the wealthiest families 鈥� actually pay. Instead, a state-approved scholarship-granting organization sends the money from the withheld taxes to the district in the form of scholarships awarded for all the kiddos. 

To make this work at scale, employers are key. Major employers (think school districts, universities, hospitals, Walmart, Amazon) could invite employees to participate via a $1,700 payroll deduction to an SGO. Employees could pick their SGO and indicate which district would benefit, and since their contribution would immediately be offset by a corresponding dollar-for-dollar reduction in federal withholding, there would be no net change in their take-home pay. 

None of this would happen by itself. If state and local leaders want to tap the funds, they have work to do. Here鈥檚 where to start:

• Identify a state point of contact and launch a working group of state and district leaders. Include advocates, business community, PTAs, etc. The tax credit scholarship is a new and messy federal policy, and getting it up and running in each state will take a lot of coordination. Someone needs to be on point, and communication channels need to be set up.
  
• Engage the governor鈥檚 office. For a state to participate, its governor must opt in by Dec. 31. Most have, or eventually will, but some may take a while as they navigate tricky politics in their state. A few state legislatures have passed laws designating a different entity to opt in, effectively removing the decision from the governor鈥檚 desk and providing the state’s chief executive with some political cover for the decision to participate.
  
  Additionally, the governor or designated official will need to submit a list of qualified SGOs (also by Dec. 31). This step will require a process by which SGOs submit their information and the state verifies it.
  
• Identify a trustworthy SGO (or SGOs) ready to deliver scholarships to public schools. While the organization must be independent from the state, the hope is that a district-focused SGO will commit to communicating about the amount of expected contributions with districts, so they can set fees. There will also likely need to be a software platform enabling taxpayers to choose their district. The SGO will need to be approved by the Internal Revenue Service as a 501(c)3 nonprofit and be listed on the state鈥檚 official list submitted to the IRS.
  
• Engage employers. Local employers need to understand the upside for students in public schools and how payroll deductions could work. They can also help shape what will likely become a major outreach effort to encourage taxpayer participation.
  
• Identify allowable fees. Each scholarship will need to be on behalf of a named student for an identified fee. Students will need to sign up (which can happen through the district). Lots of states have laws about what鈥檚 a permissible fee for public school students. (California鈥檚 laws are some of the strictest which, unless changed, might complicate this model in California). Since SGOs might not be able to predict their revenue by the start of each school year, districts might want to consider semester- or trimester-based fees.
  
• Set up data collection. Districts will need to ensure they have robust accounting for fee-related revenues (which have traditionally been treated as an afterthought). States will want to understand how funds are flowing. Giving state leaders visibility will enable them to address any inequities. Further, transparency is the best antidote to mischief, and even a small amount of fraud will sour the public鈥檚 appetite for participating.
  
• Consider income verification. The key to funding integrated services in schools is that every student participate. We hope the Treasury Department will allow families to sign a form attesting to their eligibility for scholarships based on income. This way, only a handful of wealthy families 鈥� those over 300% of their Area Median Gross Income 鈥� would need to pay the fee (our guess is that they won鈥檛 balk) or get funding from another source (say, their school’s PTA).
  
• Build a campaign explaining how public school students could benefit. Will they have richer electives and arts? Tutoring opportunities? Better career pathways? Some will want to focus on closing district budget deficits (the law鈥檚 language doesn鈥檛 prohibit supplanting), but keeping students at the center of the pitch is both good politics and good policy. Consider adding something that鈥檚 new: Perhaps drop-in math homework hours?
  
• Communicate! The federal scholarship tax credit should be on the agenda of every association conference, including those for superintendents, chief financial officers, boards and state boards of ed; local school board meetings; PTA briefings; and legislative hearings. There should be webinars, blog posts, media interviews and more. 

It might be tempting to wait a year and start in 2028, and there are still open questions 鈥� especially since Treasury鈥檚 draft regulations won’t be out until September. But delaying that long to get started puts public schools at real risk of missing out on some of this opportunity. Not only would schools forgo a year鈥檚 worth of funds, but taxpayer decisions and SGO relationships could form around other recipients. Also worrisome is that by waiting, a state wouldn鈥檛 be able to tap what is sure to be a big national push to get taxpayers signed up. 

For better or worse, this new federal money isn鈥檛 anything like traditional funding formula dollars. How much flows to public schools will depend almost entirely on how actively leaders pursue it.

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