Following a report by the Vermont Daily Chronicle, and at a time when Vermont property taxes tied to education are rising sharply, lawmakers on the House Ways and Means Committee have moved to block participation in a new federal tax credit program that could direct private donations toward student scholarships.

The decision comes through H.933, the Legislature’s annual miscellaneous tax bill, which includes a provision opting Vermont out of a recently created federal program under 26 U.S.C. §25F.

What the federal program does

Section 25F, enacted by Congress in 2025, creates a federal income tax credit of up to $1,700 for individuals who donate to qualified “scholarship granting organizations” (SGOs).

Those organizations must use the funds to provide scholarships to eligible students for education-related expenses, including costs associated with public or private elementary and secondary schools.

The credit is structured so that it reduces a taxpayer’s federal liability directly, rather than providing a deduction. In practical terms, a qualifying donation can be offset dollar-for-dollar up to the capped amount, making it a strong incentive for contributions.

There is an important condition: the credit is only available if a state chooses to participate by recognizing qualifying organizations. Federal law allows the governor or another designated state entity to make that decision, leaving it up to individual states to determine whether and how the program operates within their borders.

🍁 Make a One-Time Contribution — Stand Up for Accountability in Vermont 🍁

What H.933 does

Sections 18 and 19 of H.933 take two key steps.

First, they designate the Vermont General Assembly as the sole authority to decide whether the state participates in the federal program. This resolves any ambiguity under federal law about whether that decision would otherwise fall to the governor or an administrative agency.

Second, the bill states explicitly that “Vermont shall not participate” in the program.

The language goes further, providing that any attempt by another state official or entity to opt into the program would be void and without effect, preventing the governor or any executive agency from enrolling Vermont in the program.

In combination, those provisions both centralize decision-making power and close off participation.

How the issue was discussed

During a February 11 committee hearing, legislative counsel explained the mechanics of the federal law, emphasizing that it is a federal tax credit, not a Vermont-funded program, and that participation would require the state to identify and recognize eligible scholarship organizations.

Committee Chair Rep. Emilie Kornheiser ( D – Windham-7 ) stated directly:

“I want to opt out.”

She described the federal policy as a “loophole” and expressed concern that it could operate as a workaround to state education systems, potentially creating funding pathways outside Vermont’s current structure.

Lawmakers also discussed the role of state authority. Because federal law allows either a governor or another designated entity to make the participation decision, the committee considered it necessary to clarify that authority in state statute.

Absent such clarification, the decision could potentially have been made outside the Legislature.

Fiscal context

The decision comes amid rising education costs in Vermont.

According to the Joint Fiscal Office’s 2026 Fiscal Facts report, both education spending and the taxes that support it have increased significantly in recent years. The average homestead property tax rate is projected to rise again for FY2026, following a sharp increase the previous year.

Vermont also ranks near the top nationally in education spending per pupil and property taxes per capita, placing it among the highest-tax states in these categories.

Education spending growth has remained elevated, contributing to ongoing pressure on property taxpayers across the state.

At the same time, the Joint Fiscal Office’s fiscal note for H.933 assigns no quantified fiscal impact (“N/A”) to the decision to opt out of the federal scholarship credit program. Other provisions in the bill—such as changes to tax credits, revenue allocations, and federal conformity—are accompanied by detailed estimates, but the opt-out provision is not.

Competing interpretations

Supporters of the opt-out have framed the issue as one of policy design and system integrity.

In committee discussion, the federal credit was characterized as a mechanism that could enable parallel funding channels, operating outside Vermont’s existing education finance system. Lawmakers also raised concerns that such programs could expand over time or evolve in ways that diverge from state policy goals.

From that perspective, declining participation is a way to maintain coherence in how education is funded and governed.

Critics may interpret the decision differently.

Because the program relies on a federal tax credit rather than state spending, participation could allow additional private dollars to flow toward education expenses for Vermont students without direct cost to the state budget. In that view, the program represents a potential supplementary funding source at a time of rising costs.

The absence of a detailed fiscal analysis leaves open questions about how significant that effect might be, either in terms of participation rates or overall dollar impact.

The bottom line

The Legislature’s action closes off Vermont’s access to a new federally authorized funding mechanism while asserting control over who gets to make that decision going forward. That choice was made without a quantified estimate of its fiscal impact, even as education costs and property taxes continue to rise, leaving the tradeoffs largely defined by policy priorities rather than documented budget effects.

If you found this information valuable and want to support independent journalism in Vermont, become a supporter for just $5/month today!

Dave Soulia | FYIVT

You can find FYIVT on YouTube | X(Twitter) | Facebook | Instagram

#fyivt #vermont #education #taxes

Support Us for as Little as $5 – Get In The Fight!!

Make a Big Impact with $25/month—Become a Premium Supporter!

Join the Top Tier of Supporters with $50/month—Become a SUPER Supporter!