Senate Finance weighs scholarship-granting organization plan and concerns about delegating tax authority to governor

Staff briefed the Senate Finance committee on a draft Scholarship Granting Organization (SGO) construct under which the governor or the governor’s designee would annually submit a list of qualifying SGOs to the U.S. Treasury so Vermont taxpayers could claim a federal tax credit of up to $1,700. The draft sets the initial listing in 2027 and contains a presumption that organizations listed in the prior year will be re-listed to provide stability for donors.

The draft lays out eligibility: organizations must qualify as scholarship-granting organizations under the federal code, be nonprofit with a core mission to provide educational opportunities to economically disadvantaged students (after-school, summer, tutoring and similar programs), and ensure all grants support students attending public or independent schools capable of receiving public tuition. Senate Finance added a narrowing provision that requires scholarships be for programs partnered with or approved by a public or independent school.

Committee members sought a clearer definition of what 'partnered' or 'approved' means in practice, noting that some community-based after-school or day-camp providers operate independently but deliver services at schools. Staff responded that SGOs would make the initial determination and that the bill includes auditing language to allow the administration or the IRS to review compliance. The draft also requires SGOs listed the previous calendar year to provide an annual report to education committees by Jan. 15 with details of their scholarship activity.

Several members raised constitutional and policy concerns about delegating tax-related selection authority to the governor. One member said the committee had considered retaining opt-in authority for the General Assembly rather than giving the governor discretion to place organizations on the list; staff said the governor’s office signaled it would play a role and the draft sought compromise. Members discussed the risk that parts of the statute could be invalidated under federal review; the committee weighed the trade-off between delaying enactment until Treasury issues final rules and delivering benefits to children now if federal rules permit the program.

No formal vote was taken. Committee members asked staff to return with clarifying definitions for 'partnered'/'approved,' more explicit reporting/auditing guidance, and any budget impacts or counter-proposals for legislative control over listing.